Maher: “I have shown proof. I’m afraid I cannot make head or tail of your eccentric exercise with thresholds how does the $32,201 become $42,120 one sentence later?”

This is because you didn’t read correctly or just didn’t comprehend what I said: German wage earners pay 50% of their health, unemployment and retirement contributions from their net income, adding up to 21.175% of their pay after tax. The OECD statistics show Germany’s tax threshold for a family of 4 at €32,400 (12 x €2,700 per m.). When I posted it, €32,400 equaled $42,120 (today this would be $42,444 since the Euro appreciated).

In case the OECD-figures didn’t already allow for the compulsory 50% ‘social insurance contributions', which are standard in Germany, I simply subtracted the 21.175% from the threshold of $42,120.

This was after the compulsory insurance contributions, common in Germany at this income level, were deducted. Got it now? I forgive you, Maher, since we all know that math isn’t your favorite subject.

Maher: “It all beside the point anyway because all thresholds are necessarily absorbed in the comparisons of actual tax + contribution deductions in the OECD tables”.

This is why, smart”ss Maher, I subtracted the compulsory 50% insurance contributions in Germany already in my threshold-comparison. Even AFTER the subtraction of 21.175% (the employees contribution) the tax- threshold in Germany for a family of 4 is still set quite a bit higher than here in the US.
BTW, also here in the US the costs for the health plan for full time employees is usually ‘shared’ between employer and employee and the employee pays taxes on his share, only a few plans offer some pretax contribution.

Maher: “The OECD database on taxes is the bible for international tax comparisons and its tables are clear. Look it up”.

I did. The OECD link you provided [ http://stats.oecd.org/index.aspx ] confirms what I said previously. Table “Income distribution”, subsection “Real mean income” under “Working age population: 18 – 65”, column “late-2000s”, shows Germany as one of the OECD countries with the highest ‘real-mean-income’ at €23,421.88 ($30,682.66) per year. (All figures represented by this table are in the respective domestic currencies).

For comparison: Italy €19,355.87 ($25,356.19). Yes, France jumped, according to the OECD table, from €22, 558 at “around 2000” to €25,089 in the “late-2000s”. However, this wasn’t a very wise move without corresponding productivity gain, as we’re seeing now. France’s producers simply priced themselves out of the global market, if compared with their most fierce global competitors.

Observing that wages received by manufacture workers in Germany rose by more than 11% from 2008 to 2012, I’m quite positive that the gap between the French and German working age populations of “real mean income” will end in smoke very quickly.

Britain’s “Real mean income” shows GBP20,875.40 or €25,771.60 for the same (vague) time-period. However, Britain doesn’t have a former communist country with, still lower income, attached to it. Plus, as said before, Germany’s working population saw big wage hikes from 2008 on, which aren’t included in these tables.

I see you have opened a new thread. I shall repost my recent replies here:

@La V. : “I see the Euro’s problem rather as the attempt of some weak-currency countries to have their cake and eat it too! “

Who benefits?

Well the country that has benefitted most from the euro is Germany. The euro is the subsidy that just keeps giving to Germany. Their trade has been subsidised with the abolition of currency depreciations in their biggest market. Their prices have been subsidised with a real exchange rate reduction of 30% against the value of a D-Mark. Their savings have been subsidised by the deflationary bias of the interest rate. Thanks to the euro subsidy the cost of borrowing for a German firm is now half of that for a Spanish business – Spanish costs are penalised whilst German costs are subsidised in the same currency area!

A German company exporting to Spain therefore enjoys a subsidised price at the expense of his Spanish competitor, he enjoys a subsidised cost of borrowing at the expense of his Spanish competitor and he enjoys a subsidised insurance on the value of his retained profits at the expense of his Spanish competitor. In reality the much trumpeted “competiveness of German business is simply an artificial but exorbitant privilege that the rest of the eurozone can no longer afford to subsidise.

Of course you can choose to call this massive structure of asymmetrical policy subsidy a German “competitive” achievement if you wish but don’t be surprised, or offended, if others label it for what it really is:

Maher: “It (an inflatable national currency) isn't a guarantor but it does ensure that there is a crucial linkage between underlying economic performance and exchange rate values. A strong currency serving a weak economy is a lie.”

@La V.: “Agreed! This is exactly why all German governments continuously urged their Eurozone partners to stay competitive. They even laid out, during the March 2000 Lisbon meeting, a scheme together with (or actually 1 year before) the final implementation of the Euro.”

I have no problem with what you say of the Lisbon agenda. Indeed if more focus had been placed on the Lisbon agenda instead of that wretched travesty the Lisbon treaty European politics would have entered this crisis with much more political headroom as well as more economic elbowroom.

But in claiming a virtuous north versus a feckless south you make the habitual German lurch into a morality fable which is simply a self-serving falsehood. If the South (including and especially France) had cut their domestic demand to precisely the same extent as the North then the North could not have recovered and prospered as they in fact did. It was Southern spending that rescued German output not German cuts. German cuts certainly enhanced German corporate profits and German government revenues and, most importantly (from a eurozone point of view), it supressed German demand. It created trade imbalances. But the people to thank for Germany’s economic revival post 2004 are the Southern consumers who bought all of those German exports.

If these countries had not been sharing a currency Germany’s exports would have been much lower and the Southern capacity to raise debt would also have been much lower. Southern fecklessness would have been their domestic problem to resolve and Germanys corporatist mercantilism would have been Germany’s domestic problem (between German capital and German labour) to resolve.

The euro has been the transmission mechanism which has allowed these imbalances to build and which will ultimately be responsible for the mass default which ends them.

The problem is now Southern debt but once they default the problem will be the obliteration of Northern savings. It is the same problem moving inexorably and destructively through the eurozone system – imbalances.

Maher: “As a store of value the currency is not a credible promise to pay the bearer – the capacity to pay does not match the printed promise.”

@La V.: “That’s why sound economies try to keep the ‘promised value’ of their currency by avoiding “watering it down”. Those who do are unsound and – long term – irresponsible, IMO.”

Again you are clinging to a primitive and fetishistic school of thinking that believes that a variable in a fluid dynamic can be made into an absolute. It can’t. The value of currency is variable by definition – just as price is variable to the aggregate movement supply and demand in the domestic economy the currency is variable to relative changes in the dynamic relationship of the domestic economy with the broader international economy. For an open market economy currency value cannot be constant – by definition.

@La V.: “The world economy of the past was based on pound silver sterling, later roughly tied to the value of gold. This system worked smoothly for over 200 years . . . actually until WW I.”

Actually both the frequency and particularly the duration of recessions was worse in the gold era than subsequently. The average duration of a recession in the Gold era was 15 years – the average in the post Bretton woods era is two years. Because the euro is mimicking the same function as gold (currency fixed at an arbitrary and fixed value relative to the wide and growing differences in economic performance within the euro area) the forecasted duration of this euro induced recession will be over ten years.

The long term growth rate in the gold era was arithmetic whereas the population (that the economy had to support) was growing geometrically. This means that poverty per capita was growing. This is the definition of negative economic welfare – bad policy. The problem is not simply that there was not enough gold to cover the exponential increase in transactions (buying and selling) even after the artificial inflation of valuations gold was actively repressing economic activity and offering perverse disincentives to productive investment.

Maher: “It is counterfeit. As a means of exchange it is a dead weight imposed on transactions and therefore on demand, output and employment. It progressively strangles economic activity until eventually the gap between its nominal value and its real worth becomes so great that a devaluation/ depreciation/default must take place.”

@La V.: “See Maher, here it begins where we greatly disagree! A currency which is inflated and thus devalue-able at will is “counterfeit” in my books, not a currency which tries to keep its buying and storage value, independent from short-term political whims.”

Economic welfare is based on the growth in material security of the many not the few. It will not subsidise the rent seeker at the expense of the unemployed. It will make a direct deduction from the accumulated savings of those who have profited from an economy’s past performance, they are the direct beneficiaries of past market bubbles and irresponsible excess. After a crash they get to have their assets (savings) devalued too. After all the income that produced these savings was inflated by the bubble and the value of these unearned historic gains should be subsequently discounted back down to more realistic levels when the bubble bursts. In a free market economy they cannot be immunised by state policy from the downside risk of their past misallocation of capital. Instead they share in the economic pain by taking real losses. This is Schumpeter’s creative destruction. It is capitalism 101.

The concept of the “risk free asset” such as gold/ hard currency and sovereign bonds is a profoundly destructive demand that the state subsidise savers and penalise workers. It is the moral hazard that lies behind this financial catastrophe – unproductive banks and unproductive savers will always be bailed out by the taxpayer whilst productive workers and productive businesses are evicted from their jobs and their homes.

In a free market there cannot be any such thing as a risk free asset. If you want to live in an economy with an absolute state imposed currency subsidy then North Korea is your best destination. But if you want to benefit from living in a productive economy then you must pay the capitalist piper and accept that savers and hoarders cannot be protected at the expense of everybody else. Welcome to market capitalism stranger….

@La V. : “This is why, I subtracted the compulsory 50% insurance contributions in Germany already in my threshold-comparison. Even AFTER the subtraction of 21.175% (the employees contribution) the tax- threshold in Germany for a family of 4 is still set quite a bit higher than here in the US.”

Well La v. the OECD has done all the work for you. There are therefore no demands made on your arithmetic – or mine. Thresholds are fully absorbed in the taxable income of the average German taxpayer – as are all deductions. Precisely the same exercise has been performed for the average American taxpayer in the same table. The result is unalterable – in constant dollar terms (i.e. PPP weighted dollars) the American family on average earnings only pays 55% of the taxes + deductions that the equivalent German family pays. Your strenuous but futile DIY improvisations cannot make this hard fact go away.

Maher: “The OECD database on taxes is the bible for international tax comparisons and its tables are clear. Look it up”.
I did. The OECD link you provided [ http://stats.oecd.org/index.aspx ] confirms what I said previously. Table “Income distribution”, …….

Well all this means is that you are trying to change the subject from taxes to income.

But by all means let us talk about taxes and income:

I do not dispute (and nor have I ever claimed) that even net of tax Germans have above OECD average in earnings (18% higher in fact).

What I have claimed, and what you cannot rebut, is that the average German pays far higher taxes than their peers in the rest of the OECD pay (34% higher in fact).

So, in complement to your level of understanding, let’s do this in baby steps.

Before tax (gross) income in Germany of a married average wage earner with a partner (also earning at 67% of average wages) and two kids is 31% higher than OECD average. [Constant PPP $ used throughout]

After tax (net) income in Germany of a married average wage earner with a partner (also earning at 67% of average wages) and two kids is only 18% higher than OECD average.

This is because the German household on average earnings is charged 34% more in taxes and deductions than their average OECD equivalents.

Conversely; if the average German household only paid the average OECD rate in taxes, then their post tax or net income would shoot right back up to its starting level = 31% higher than the OECD average.

What is the trade impact of this anomaly in German taxes:

1. The average German household is the biggest contributor to total household consumption both because it makes up the overwhelming bulk of household consumption and also because it has a high marginal propensity to consume.

2. It follows (from 1 above) that this group forms a crucially large component of total domestic demand within the German economy.

3. Therefore a government imposed decrease of 13% in the spending power of this cohort of German consumers (relative to their OECD peers) has deliberately imposed a massive suppression of Germany’s overall domestic demand.

It is certainly the case that if Germany’s OECD peers had pursued the same mercantilist strategy as Germany has then Germany’s own exports would have nosedived.

QED - my contention is proved. German taxes have been deliberately engineered to penalise the average German earner and thereby supress German domestic demand at the expense of Germany’s trade partners.

Mercantilism has nothing to do with “competitiveness” La V - it is all about free riding.

Maher: “Well the country that has benefited most from the euro is Germany.”

It looks like it currently . . . but this wasn’t the case when the Euro was first introduced. All Euro countries had many years of 'trial and adjustment', first in the d-mark-snake, then with the ECU.

When they began in Jan 1999, Germany’s starting position was probably the worst of all participants; the newly acquired ‘territories’ were dragging the whole country’s economy down, which needed sensitive monetary fine-tuning only a domestic currency could provide.

The pre-accession of the CEE countries pulled heavily on the job market of Germany’s Eastern part. Wages, just across the Neisse River, were less than one tenth of Germany’s. It is not hard to imagine that Germany would have been far better off being by ‘itself’ for some more years, to have time to finish her unification process. The German public shared that skeptical view.

Die Woche wrote August 1998, “If there would have been a referendum today, then 54 percent of Germans would have opted out of the new currency. Only 7 percent expected that Germany’s economy will benefit from the introduction of the euro.”

Knowing the public mood, but unable to breach Kohl’s verbal assurances to Mitterrand, given in the wake of the unification procedures during the ‘Two Plus Four Talks', the political class, in unison, denied the German electorate the referendum; actually an outrageous disregard of public will of the German people.

According to a testimony given by the former Federal President Richard von Weizsäcker, “At the cradle of the Euro not economic but political considerations acted as the godfather”. The Treaties of Maastricht, which were negotiated in 1991 to implement the euro and to be ratified in 1993 were, "nothing more than the price for reunification" (von Weizsäcker in Die Woche, 9/19/1997).

Brigitte Sauzay, then interpreter for President Mitterrand, wrote it even more clearly in her memoirs: Her boss (Mitterrand) “has given his covenant to reunification only at the price that the German chancellor (Kohl) sacrifices the D-Mark” (Der Spiegel, special issue 2/1998).

The European Commission had issued its decision in early April 1998. At the EU summit early May 1998 nobody doubted anymore that the decision was final, and it was also clear which countries would begin with the new currency on January 1, 1999: all EU-countries with the exception of Britain, Denmark and Sweden (which did not want to join at the time) and Greece (which -all too obvious- didn’t meet the criteria).

All participating countries were, then, of the belief that they have an equal chance to prosper under the common currency. If they wouldn’t have thought so, they would have done as Britain, Denmark and Sweden did – stayed out.

So, please no excuses from that side. It's really not Germany's fault when the governments of some countries misjudged, on an ongoing basis, their own economic strength versus Germany, which, additionally, was in the least suitable position to give up her domestic currency in 1999.

It seems that only a few countries really understood the challenge this common currency meant for the individual participating nations.

For Germany, Jan 1, 1999, the day the Euro was adopted, marked the beginning of an economic down-slide unprecedented in post war history. Unemployment rose to unimaginable heights, unknown in Germany since the 1930s. These figures peaked in 2005 when the official number was 13%, and unofficially 20%.

Introduction of the Euro had turned this once ‘economic powerhouse’ into a “sick man of Europe”. Actually, it was not before Germany introduced the scrappage program, January 13, 2009, in the wake of the global recession that began in 2008, that she slowly came, ‘anti-cyclical’, out of her decade-long slump.

Today it is seen by economic experts that Germany’s recovery is resultant from the country’s economic reforms implemented in 2004 under Schroeder’s administration and continued under Angela Merkel . . . and has absolutely nothing to do with the Euro as the country’s currency!

To claim now, after the country’s almost 10 years of economic downturn -mainly because of the Euro- that Germany over the period of its existence “has benefited most from the euro”, is as stupid a claim as they come.

What B.S. Families of 4 don't pay taxes at all in Germany up to the threshold. That's why a family of 4 with the same gross income as in the US or in Britain (up to EUR 2.700 p. month), has a much higher disposable income in Germany than anyone, anywhere in the world - This is a proven fact, Maher. I can't help you when you are too ignorant to grasp it.

How an independent country organizes its taxes and contributions is solely to the disposition of the concerned people . . . and not subject to Maher's dictatorial ambitions.

'Savers' are usually the 'little people' who put the few cents saved in their working lives into low-interest bank deposits or t-bonds, in order to have a few extra cents to compensate for their devalued pensions (also called "normal retirement age adjustment" to age 67 or 68 . . . or 75 one day"), while the Soroses and Blankfeins of this world create one market distortion after the other; one 'crisis' after the other, with cheaply borrowed 'bailout cash' dumped from Ben's proverbial 'helicopter' ... which - by "pure accident" - never hit the millions of 'little men on Main Street', instead always land safely on the 'landing strips' of those who created and manipulated these "god-given" bubble-bust cycles in the first place.

Whom do you wanna brain-fu** with such idiotic claims, "that the 'average saver' is a devious rent seeker", Maher? Spare me this bloody nonsense, Please!

"Rent seekers" are those who lobby the floors of Western governments and parliaments, without ever creating real value, influence politics with billions of dollars, gained in the halls of a perverted casino capitalism in London and Wall Street. They bribe and deceive, put their agents in all monetary key positions around the Western world . . . and falsely call themselves 'investors', in order to be able to continue their asocial gambling against the well-being of the nations!

What this article completely fails to value or even consider is the flow on impacts and economic benefits of maintaining a strong agricultural sector- namely a decentralized population. By maintaining a farming population there is an impetus for small towns and villages to remain. The outcome of this is not only the avoidance of the diseconomies of scale in megacities but also means that companies like SAP can pop up in a village in the country side (Walldorf has 15000 people) and maintain their presence there, rather than being forced to move to the infrastructure of the cities. It also means you can arguably maintain better standards of living (lower property costs for one), equitable access to medicine and education (albeit not tertiary) and maintenance of the cultural heritage of agricultureal societal roots (not so present in megafarms).

The headline KPIs of this article, comparing EU spending to agricultural component of the GDP are a classic error- measuring the wrong metrics to reach the wrong conclusion. As an Australian and professional I deeply regret that my only career options can be in Sydney & Melbourne (to a growing extent Perth) due to a lack of policies like CAP to maintain a decentralised society.

SAP is headquartered now in Walldorf, Baden-Wuerttemberg, but was founded in Weinheim, a suburb of Mannheim, BW, a quite sizable city.

SAP's move to Walldorf was due to the new location's closeness to Heidelberg (8 miles), which is the fifth-largest city in the State of Baden-Wuerttemberg, and site of the renown Heidelberg University with all its research facilities.

The decentralization in Germany today has little or nothing to do with the EU's CAP policies, it's rather a result of Germany being a 'patchwork-rug' of mini states and independent counties between the Thirty Years' War [1618-1648] and the Prussian-French War [1870/71] which led to the country's unification.

This was the period when the national centers in Europe's big nation-states, Britain, France and Russia really took off, with their capitals London, Paris and Moscow drawing on their nations' wealth, leaving the rest of the country behind, often educationally barren and economically 'underdeveloped'.

The German nation's fragmentation, which seemed a disadvantage at the time of the mini-states, turned out to be an advantage now, making Germany one of the most evenly developed nations on earth, described by you as "you can arguably maintain better standards of living (lower property costs for one), equitable access to medicine and education (albeit not tertiary) and maintenance of the cultural heritage".

All this you've summed up doesn't need CAP, which was anyway introduced much later. The highly developed state of Baden-Wuerttemberg is one of the least CAP-benefiting regions in the whole of Europe . . . Though the newly acquired 'eastern territories' still need time to catch up.

By all means, the Economist's article of the year. The CAP policy is the origin of all EU's current disorders.
If Merkel maintains her ground, Germany might get into a better negotiation position in the future and thus could trade CAP rectification for France's economy financial aid. All it takes is time. Just keep calm and carry on.

EU should make export-import of agriculture trade free of tax and free of all sorts of stupid barriers.
Food will be much cheaper.
and that would be the greatest help to poor farmers of the third world.
It is WIN-WIN situation.

Farmers should adapt themselves to the demands of the new world.
Instead of living at a luxury house, having a few luxury cars in front of it, in the middle of big green field.

Adnan, how many farmers do you know that "[live] in a luxury house, have a few luxury cars in front of it..."? Get real. Have you never heard of "ploughing the profits back into the enterprise"? Unlike the farmers of your vivid imagination, real farmers plough the money back and don't waste it on luxuries. Maybe you're talking about "gentleman farmers" or "couch farmers"... but they're not real farmers.

@However, in a potentially unstable world it's not unwise of governments to make sure that there’s always sufficient supply of the 'basic needs' from sources next door - whereof food is the 'most basic' of all. As all major conflicts of the past century showed, trying to starve out the enemy populations through sea blockades was effectively used as a weapon against the enemy’s civil population, especially by powers with naval dominance.

By providing such huge subsidies they are killing the farming sector in my opinion not preparing for a kind of catastrophic blockade ala 2nd world war.

The efficiencies of farms is also dependent on farming not leaving the land barren. Absolutely no doubt that overwhelming advantage of mass productive farming, plus poetic injustice as Diamond Jared would put; of the vagaries of nature i.e. the immense mild natural weather advantage plus periodic rains in southern European and midwest American place these regions in a different productive league over the third world.

Natures favours European lands, rich nutrients through rivers and frequent rains are a blessing when compared to sub-Saharan Africa and near equator South Asian farmlands.

All these factors plus many others lead to potential of massive over production that threatens prices of commodities that possibly could lead to huge losses for relatively well healed mass farmers in these heavily subsidised European commodity markets. It is a policy that encourages the fittest over the neediest. A phasing out of CAP and open world trade may help the poor of the world plus a little benevolent outlook of a socialist Mr. Hollande may be handy. Fair trade not aid is the answer to the global inequities we face.

To maintain social peace and avoid fault lines within Europe, it is necessary for EU to regulate supply just enough to feed but avoid a global gluttons manipulate price mechanism. This subsidised farming industry and price manipulation plays havoc as they dump their near free subsidised products on the poor African markets, their heavy cost products are sold below African production prices, this actually kill farms and farmers.

So CAP negates free market economy, it is all about safeguarding inefficiency, guardianship of under production, creating conditions suitable for dumping and maintaining unique EU mandarins based bureaucratic regulated global poverty. It has nothing to do with maintaining granaries of crisis in case if their are wars in an open border Europe. Europe by the way is not a tinder box as it was from 1870-1940. With a tongue in cheek I would suggest 'It is little different this time!'

I've enjoyed reading your numerous comments, especially the one about the connection between subsidies in the developed world and poverty in the Third World. You've made a more balanced and informative contribution than Charlemagne.

(2/2)
We are not on a boat, it is true.. But wait.. it happened already somehow in the past. Nowadays history is pointing that one major volcano eruption in Island for having been one the major reason for the bad crops in France end of the 1780's, and this to be on its turn to be one of the major reason leading to the French Revolution, in turn leading to twenty years of European Unrest time... till Napoleon bite the dust finally...

You will tell me : this was in the past, long time ago, and we would buy abroad... like it is said about Great Britain in the 70's in the article.. Well, first it is assuming that the “thirst” for “food”, and the shortage of it, would be limited, limited to Europe, that Europe would have enough “cash” to buy enough “basic food supply” to feed enough people without fueling “major social unrest”... Well, ok, the event of such “major food crisis” is maybe a rather little risk, all considered, but it is exactly the level of risk for any major “security” event that could impact Europe as a whole, on common security level and military issues speaking..

And, I am sorry to say so, but for me “food security” risk is as much a major risk as any “military” and “common security” risk issue (and the first, “food issue”, may likely turned quickly to a very practical “internal security” issue, including riots and wide spread “people looting for food” events). “Looting for food” events.. it sounds nuts, right? But this is happening everywhere, those days, in such case of food shortage...

That's why I am not that much sure it is fine Europe to be building a common security policy without much focusing on internal security aspect of it, which includes, in my mind, “food shortage risk” issue...
And that is also why I am not “happy” (the least saying) to read news considering so much CAP only or so much only on “budget”, “equity between economical sectors” or “do we really need to pay farmers to maintain nice countryside landscape “, leaving “food security” on the side, like an “anecdotal” point.... Sorry but no ! Not agreeing on that ! It is also to be considered also on “common security” level... And no one is able to feed long time on “we managed the budget efficiently and according to the most likely economical perspectives for some years ahead”... This is not “actual” food, those are words.. I want “European” managing leaders, on EU level, to ensure “bread” perspectives sure also ! And there I am not talking about “economical growth” or “any citizen level of income”.. But really and basically of “food” !

This being said, again, I found the article much raising interest (as you may have understood...) and this reminds me that, here, in Brussels, there had been quite much news in the local newspaper about the “milk farmers” and the huge spreading of milk they made on the EU buildings … In one of those newspaper, La libre Belgique, there had been two questions about it :
-Are you backing the milk producers initiatives ? “Soutenez-vous la démarche des producteurs laitiers ? “ (3500 voters today : 75 % yes/”oui”)
-Would you be ready (willing?) to pay more for milk ? “Seriez-vous prêts à payer votre lait plus cher ? “ (3300 voters, 65 % yes/”oui”)

(1/2)
A few things drew my attention while reading through the article below this caricature.

First yes it is a bit raising questions to see that the biggest amount of money is going "mechanically" to the biggest farmland owners, and for western farming (and to see that the timing for "equalizing" the last aspect has been "stretched" lately).

Second, i am not sure if i understood it correctly (not a specialist), but it seems, according to the ratio"s mentioned by the article, that farming is amounting to 2% of the EU-GDP, while representing only 0.4 % of "overall public spending’s" on the same level (even though yes it is 40% of Common Agricultural Policy, CAP, which is reminding at once how "much" (or little) the EU budget is...). So does the amount look finally really that much "disproportionate" ?

Third, i am not sure that focusing finally on "rural development" issues solely is really « enough » to close the debate.... and I am not considering as “telling all” the idea to leave "any country" to decide on its own if it does want that much to finance "cows with bells to graze on flowering pastures, or stipends for poor farmers so they can live on marginal land", or to talk about the matter as „maintaining the landscape, looking after the environment” issues.

The article, on its own, is dealing, partially, with an issue I am rather worrying about myself now and then. And it is the “food security and quality” matter. And here I won't talk about the quality side, but the security side. You can never exclude the possibility of a high stress on food security, ever ! And the recent years have reminded us about that aspect.

Do you remember the food queues in Egypt a few years ago, and the fear for “social unrest” that this situation could lead to? By the way similar events occurred in some members state of the EU less than 15 years ago... Never heard about it ? still it happened...

And this could happen any time in Europe withing a matter of a few years. It is always possible. And one had to consider that you can't re-create a “food local industry”, on basic level (so farming), instantly (this is common to any primary or secondary economical type of activity). Farming industry cannot be created and produce at once enough for all food needs, out of barely no still pre-existing farming activity ! You need ready to use farm land, you need trained farmers, etc ! Crops are also tending to have the “bad habits” of taking always some time to grow, without any one to be able to ensure, first that it will be possible to seed (you need the seeds first anyway to start with basic things, and so on), then second to be really able to harvest something anyway (weather uncertainties, so on).

Does nobody is recalling oneself that major “social unrest” in Europe may have started through this very way : bad and insufficient crops, no possibility to buy elsewhere at “sustainable” prices , at least for a fair proportion of the population.. Not much telling for you ? Not reminding you the Titanic movie hum ? “Half the people on this boat are going to die ! “ said Rose. To what Cal answered : “Not the better half”.... Does this need further comment ? …

Nothing hurts poor of the world than these subsidies at the heart of the western economies. These subsidies are intended to maintain price levels high. By not producing and paying for non production they effectively maintain the price artificially.

Claire Godfrey, trade policy adviser for Oxfam, said: "Not only does the Common Agricultural Policy hit European shoppers in their pockets but strikes a blow against the heart of development in places like Africa. World trade talks aimed at reaching agreement on subsidy reform have stalled because of the EU's intransigence over its CAP. The CAP costs British taxpayers £3.9bn a year and also adds £16 a week - £832 a year - to the average family of four's food bill.

We lamentably exist in a world where one billion people are hungry and an equal number are overweight or obese, while more than a billion tons of food are wasted each year. British households pay an extra £832 a year in grocery bills due to the huge EU subsidy system that is also depriving tens of thousands of African farmers of their livelihoods.

The bills are footed by EU tax payers and this is one of the major inequity, a kind of political bribe to keep the rural constituents happy. France cannot afford to cut these subsidies, it is not about the percentage of GDP that farms contribute but political leverage the farmers have, a French centralised economy around region Parisian is paralysed by the farmers in not time if anyone dare touches the issue of subsidies. The European system of price support and import barriers has in the past distorted trade patterns, often to the disadvantage of developing countries.

In 2010 in Paris they've have shut down the capital's most famous shopping boulevard. Dozens of farmers erected barricades and set fire to piles of tires on Paris' Champs Elysees in 2010. Elsewhere in France thousands of farmers took part in the demonstrations including driving their tractors slowly down busy streets to disrupt the traffic flow and tipping old wine, eggs and manure onto public spaces. Paris is the biggest beneficiary of the EU’s Common Agriculture Policy. France currently swallows up 20 percent of the bloc’s euro farming subsidies.EU would be unable to pay its bills of ever-increasing bills of subsidised farming demanded by likes of France without the extra money. It is the dream of creation of subsidised wine lakes and butter mountains that is the leading killer of poor farmers. European countries dump thousands of tons of subsidised exports in Africa every year so that local producers cannot even compete on a level playing field in their own land. Meanwhile, governments of developing countries come under intense pressure from the World Bank and the International Monetary Fund to scrap their own tariffs and subsidies as part of free trade rules.

There is a deadlock right now over demands by the European Commission for a £7.3 billion spending increase by the end of this year to meet a funding shortfall, figures that are disputed by Britain and other governments. They have lakes of wines and mountains of wasted uneaten foods, CAP subsidies are clear cut a- thesis of free markets and cause of too many market inequities, the state manages their farmers and their rights very well so do they supervise their water well. Everyday goods such as bread, milk, sugar and chicken are all more expensive because of the payments made to British and European farmers. At the same time, dumping of subsidised produce in African countries is forcing local producers out of business.

The effects
* SUGAR
Farmers in Europe are guaranteed a price for their sugar which is three times higher than the world price.
* WHEAT
Kenya, Nigeria and Senegal have been hit by cheap, subsidised imports from Europe .
* MILK
Thousands of tonnes of surplus powdered milk from the EU are dumped in West African countries.
* CHICKEN
Our preference for chicken breasts and legs means that thighs and wings are often frozen and exported to Africa where they are sold for rock-bottom prices.

Europe is not unique in subsidising farmers and distorting markets. The USA - a major exporter of agricultural produce – also subsidises the sector. The EU’s legendary, and recurring, wine lakes and butter mountains are the result of surplus production, deliberately held back to prevent market volatility. In particular, EU farmers have been heavily subsidised to grow sugar beet, whereas free trade would dictate that sugar would be imported from countries which can grow it at lower cost. One of the key objectives of the stalled Doha round of WTO negotiations has been to reach a deal on reduction or elimination of agricultural subsidies in order to benefit developing world farmers.

It is the unfair regulatory framework of the developed world that is the greatest impediment in eradication of poverty and not the global warming, more shoddy insurance schemes as above only serve as cost increase.

However, in a potentially unstable world it's not unwise of governments to make sure that there’s always sufficient supply of the 'basic needs' from sources next door - whereof food is the 'most basic' of all.

As all major conflicts of the past century showed, trying to starve out the enemy populations through sea blockades was effectively used as a weapon against the enemy’s civil population, especially by powers with naval dominance.

The infamous "Blockade of Germany", cutting off Germany's food supply from overseas sources, occurred during and after World War I, from 1914to 1919 (actually way into peacetime, beyond the cessation of hostilities) and was conducted by the Allied Powers.

It is now considered one of the key elements in the eventual allied victory in the war. The German Board of Public Health in December 1918 stated that 763,000 German civilians, mostly women and children, had died from starvation and disease caused by the blockade up until the end of December 1918.

No wonder that countries with such horrible experience don't want to be dependent on food supply from overseas, e.g., from Kenya or Nigeria.

@However, in a potentially unstable world it's not unwise of governments to make sure that there’s always sufficient supply of the 'basic needs' from sources next door - whereof food is the 'most basic' of all. As all major conflicts of the past century showed, trying to starve out the enemy populations through sea blockades was effectively used as a weapon against the enemy’s civil population, especially by powers with naval dominance.

By providing such huge subsidies they are killing the farming sector in my opinion not preparing for a kind of catastrophic blockade ala 2nd world war.

The efficiencies of farms is also dependent on farming not leaving the land barren. Absolutely no doubt that overwhelming advantage of mass productive farming, plus poetic injustice as Diamond Jared would put; of the vagaries of nature i.e. the immense mild natural weather advantage plus periodic rains in southern European and midwest American place these regions in a different productive league over the third world.

Natures favours European lands, rich nutrients through rivers and frequent rains are a blessing when compared to sub-Saharan Africa and near equator South Asian farmlands.

All these factors plus many others lead to potential of massive over production that threatens prices of commodities that possibly could lead to huge losses for relatively well healed mass farmers in these heavily subsidised European commodity markets. It is a policy that encourages the fittest over the neediest. A phasing out of CAP and open world trade may help the poor of the world plus a little benevolent outlook of a socialist Mr. Hollande may be handy. Fair trade not aid is the answer to the global inequities we face.

To maintain social peace and avoid fault lines within Europe, it is necessary for EU to regulate supply just enough to feed but avoid a global gluttons manipulate price mechanism. This subsidised farming industry and price manipulation plays havoc as they dump their near free subsidised products on the poor African markets, their heavy cost products are sold below African production prices, this actually kill farms and farmers.

So CAP negates free market economy, it is all about safeguarding inefficiency, guardianship of under production, creating conditions suitable for dumping and maintaining unique EU mandarins based bureaucratic regulated global poverty. It has nothing to do with maintaining granaries of crisis in case if their are wars in an open border Europe. Europe by the way is not a tinder box as it was from 1870-1940. With a tongue in cheek I would suggest 'It is little different this time!'

We seem to agree on the capital mechanics which underlie the Target 2 build up. However you do not seem to have grasped the connection between these dangerous capital imbalances and the prior trade imbalances which are responsible for creating them. This is because you think you can detach the benefits of Germany’s past eurozone trade surpluses from the costs of Germany’s current capital risks. It is this popular illusion (above all others) which lies at the heart of Germany’s destructive euro policy.

Let me illustrate by expanding the frame of the accounting identities which apply here:

A: TRADE SURPLUS IMPACT:

Since 2005 Germany has enjoyed a consistent trade surplus of around 6% of German GDP – in $ value terms this has been either the highest or the second highest trade surplus in the world. However Germany’s trend GDP growth has only been 0.8% - at the bottom of the OECD (rich country rankings). It is therefore very questionable whether so high a domestic sacrifice to subsidise exports has been welfare positive for Germans.

But there can be no doubt whatsoever that it has been extremely welfare negative for the eurozone. This is because Germany’s trade surplus is made up from French, Spanish, Greek and even Italian trade deficits.

We know this because, despite Germany’s 6% surplus, the overall eurozone current account (with the rest of the world) was in balance. Since all the eurozone external trade nets out to zero (it balances) then Germany’s 6% surplus must be offset by an equivalent net trade deficit shared amongst the remaining members of the eurozone.

Note this does not mean that Germany did not earn a surplus (or a deficit) on her non eurozone trade – it just means that after all eurozone trade deficits (including Germany’s ) with non eurozone partners are deducted from all eurozone trade surpluses (including Germany’s) with the rest of the world the result, for the eurozone as a whole, is trade balance (= zero).

As Germany’s GDP was @ 32% of eurozone GDP it arithmetically follows that the combined trade deficit of all other eurozone economies with just Germany averages at just under 3% of their combined GDP .

Note this does not mean that all eurozone countries have experienced a trade deficit with Germany but that the net trade deficit with Germany of all of them combined was equivalent of 3% of their combined GDP (i.e total eurozone GDP after deducting German GDP).

This is a punitive year on year transfer of wealth – more importantly it is an unsustainable transfer of wealth. Most important of all - it is a trade bubble derived from the artificial conditions imposed by the single currency. Absent the euro the automatic stabilisers such as currency depreciation would long ago have halted and even reversed these lethal trade distortions. But there is no longer a domestic currency to depreciate and so the Germans have been able to use the euro as leverage to engineer and perpetuate these trade distortions.

The consequences is that net borrowing of the worst afflicted economies has increased because net private sector saving in those countries cannot grow as fast (and it therefore cannot fund) the deficit trade. This means that net capital had to be imported from Germany in order to cover the trade deficit these countries have accrued with Germany. After a period of time the eurozone capital account must reflect the repeated current account distortions derived from trade imbalances.

It is these borrowings that have now found their way back to Germany in the guise of inflated sovereign debt (from collapsed private banks) and private capital transfers (Target 2).

The interval in which the capital account catches up with the accumulated current account imbalances is now nearly over. The combined capital imbalances are now nearly equal to the previously accumulated current account trade surpluses. The trade bubble (which benefitted Germany) has become the capital bubble (which threatens Germany).

Now if (as we have agreed) the eurozone is not to become a debt union and a transfer union then it is imperative that growth rates amongst all members must tightly converge. If they diverge the currency cannot survive (because it doesn’t have the necessary support of cross border solidarity payments that are provided under a debt union and a currency union).

Unfortunately the German (and therefore EU) policy is to completely ignore economic divergence (which is strong and growing but benefits Germany disproportionately) and concentrate only on fiscal divergence (which is strong and growing but threatens Germany disproportionately).

This means that on top of an already chronic deterioration in economic conditions an additional pro cyclical burden of monetary and fiscal austerity has been imposed on the worst afflicted economies. Now, in an afflicted economy, government spending must dramatically reduce in an environment in which private spending has already collapsed. The corollary of this is that if government saving are to increase than private sector saving must decrease (in the same national accounts). If private sector dissaving persists than obviously private sector firms must close . The longer the period of state imposed austerity the more comprehensive is the damage done by net private sector dissaving in the same national accounts. GDP will continue to contract. It cannot do anything but contract.

The same perverse mechanisms occur in the monetary arena. Credit to Italian businesses is harder to obtain than in Germany and when obtained it costs a third more than the borrowing charges faced by German companies. This is not a judgement on Italian competitiveness this is a distorted and differential interest rate playing field that places Italian businesses at an absolute economic disadvantage compared with their German peers.

So these economies are being rapidly hollowed out whilst Germany continues to grow. Thousands of southern businesses are closing unnecessarily. Millions of southern workers are becoming unemployed unnecessarily. The euro is being kept alive on the lifeblood of the southern unemployed, southern business and southern taxes.

It would be difficult to imagine a greater social and economic injustice than this.

Of course it has to end and we are now poised in the artificial calm that resides the eye of this euro storm. If not immediately reversed the rate of southern economic collapse will continue to accelerate. Wholesale southern destitution will create an overwhelming southern backlash. The resulting defaults and departures will simultaneously liquidate both the euro and German savings.

Lose/ lose is always the outcome of win/ lose strategies. Germany will lose everything precisely because she tried to play everybody else in the shared currency for a sucker.

Once again, the price that Germany and Europe will pay for imbecile zero sum thinking is simply staggering…..

Maher: „We seem to agree on the capital mechanics which underlie the Target 2 build up. However you do not seem to have grasped the connection between these dangerous capital imbalances and the prior trade imbalances which are responsible for creating them”.

I 'grasp' it, Maher, but I cannot see how this be only ‘Germany’s responsibility’ in a trading community organized by 27 nations. It’s up to the organizers of this Union to find and implement a practicable solution. Germany is only one country of several which has continuously trade surpluses, and, btw, not only with Eurozone countries.

I agree: if the deficit countries had to pay for their imports in gold or forex, then trade deficits in this ballpark couldn’t materialize in the first place. They also couldn’t materialize in this size if the TARGET2 accounts needed to be really ‘settled’ (balanced) by the end of, e.g., each calendar year. The Bundesbank suggested this, but it’s the peripheral countries protesting vehemently against such ‘imposition’.

As it is now, the sums (in Euros) their central banks don’t use to balance their account with the Bundesbank they use to pay for third-country imports, such as Middle East oil and Russian gas. That’s the main reason why it’s not Germany promoting the Target2 system, but the deficit countries. Thus, it’s not “Germany’s destructive euro policy”, but the E.U.’s – majoritarian - intentional policies.

Germany is one of the main trading nations of this world. Meanwhile more than 60% of her trade is realized outside the Eurozone. It is, thus, impossible for German producers to implement different (more ‘pampered), levels of competitiveness in their dealings within the EZ from those harsh terms required by the global market. This whole global problem, Maher, is a result of the creation of ‘thin air’ monies combined with ‘free trade’ policies.

This is a little different in the case of Britain. Britain is still able to generate a relatively ‘hard’ (tradable) currency herself, thus she can still pay for her excessive imports simply by expanding her own currency. However, this is not possible for deficit countries that don’t have this privilege (which, btw, most economically weak countries don’t have).

This is why I’ve said earlier that the current crisis is the result of the creation of ‘thin air’ monies combined with ‘free trade’ policies.

When Britain “ruled the seas” (and global trade), it acted in a fiscally stable environment, based on the trade value of precious metals. When the Bank of England suffered a massive shortage of silver coinage in the late 18th and early 19th century, it didn’t change its conviction that minted coins needed to be fully backed by gold or silver. From 1790 on it started to issue "token" silver coins or ‘re-minted’ foreign silver coins by striking the ‘British crown’ over it.

WW I ruined not only the British gold and silver reserves, but also the British Pound's uncontested position as the world's trade and reserve currency. Insofar, not only Germany was on the losing end of that 'zero–sum game', if your assumption is correct that losses and gains will sum to zero.

In an attempt to replace the failed British world order, the Bretton Woods system was established with the (American) goal to catapult the US Dollar, as a fully gold-backed currency, into the driver’s seat of the global economy.

As price for America’s involvement in WW II on the side of the Allies, it was agreed by the 730 delegates from 44 Allied nations that the US dollar would be the world's new reserve currency, replacing the British Pound, which had performed this function for over 100 years, making Great Britain the world’s leading economic power.

With the abandonment of this privilege, Great Britain officially handed over the scepter of the economic world domination to the United States. After the agreement was signed by, all participating national banks exchanged their reserves into US Dollars. After WW II the defeated countries' national banks followed.

The Bretton Woods agreement, based on the dollars’ gold-linkage, was surely not a ‘perfect system’. Especially its dependency on men-dug finite resources was a deficiency.

However, if the delegates from those 44 nations, who signed the agreement on July 22, 1944, in New Hampshire, would have anticipated that the gold-linkage of the system will be replaced one day by absolutely ‘nothing’ - but the printing press of the Federal Reserve - then one doesn’t need to be a Nobel prized economist to know that not many of the delegates would have voluntarily signed such an arbitrary interpretation of the newly found world trade order.

The creation of money at will, quasi from 'thin air' without any basis or binding rule, is the underlying reason for these never-ending world financial crises.

The Eurozone periphery's spending-adjustment (austerity as you call it) has a somewhat positive effect on the those nations' current accounts. As was the case with Portugal earlier, the Eurozone periphery as a whole has eliminated its trade deficit.

Depriving these countries of the magical 'Open Sesame' term might turn out to be a long-term blessing after all.

It's the very same as with one's kids. When money is tight and the parents are not able to give their kids the luxuries they want, it's easy to make them feel guilty . . . but tough times can be a 'blessing in disguise' too.

We have previously established that former eurozone trade imbalances (good for Germany) are the source of the current capital imbalances (bad for Germany).

Germany’s annual surplus with the rest of the eurozone was worth 6% of German GDP.

Let’s assume a counterfactual: Germany’s net balance of trade with the rest of the eurozone was in balance between 2005 and now. This would mean that the rest of the eurozone would not have been running a combined annual deficit with Germany of 3%. No trade imbalance, no economic divergence and no capital imbalance = no euro crisis.

The reason that Germany has been able to sell more to the eurozone than she buys from it is because (relative to the size of her GDP) Germany offers their exporters a smaller market then they offer her. At 50% of GDP Germany’s domestic market is tiny when compared to the eurozone average of 78% of GDP. Even in absolute dollar terms Germany’s domestic market is smaller than that of France and Italy and not that much bigger than Spain’s.

But what domestic German policy accounts for so restricted a German domestic market?

In a word - Tax.

According to the OECD the % tax + govt. compulsory deductions of gross earnings paid by the average German is far higher than the eurozone average.

A single average earner in Germany pays 41% of his gross income in tax + deductions. The single average wage earner in the eurozone pays 25% of his gross earnings in tax + deductions. (Even the average ex eurozone Swede pays 25% !!).

In addition the marginal rate of tax of the average German wage earner is 56%. This means that for every 1 euro increase in his pay he hands over 56 cents to the government. The average eurozone wage earner’s marginal rate of tax is 27%.

The same startling discrepancy between Germany and the rest of the eurozone applies to a married earner with partner working (and earning 67% of the average wage) + 2 kids. There the poor Germans pay 32% of their combined gross income in tax whilst their average eurozone counterparts pay only 21%.

Pre tax the average German earns 28% (in constant euro) more than his average eurozone counterpart. Post tax his advantage has dwindled to 15%.

So relative to his gross earnings the average German consumer has a lot less cash in his pocket than his eurozone counterpart. Consequently he spends relatively less on consumption than they do. His domestic market is therefore relatively small in comparison with theirs.

So let’s assume another counterfactual – according to the OECD our average German household (2 earners married with 2 kids as described above) earns 68,500 euro. If instead of paying 32% of their combined income they paid only 21% then hey presto this average family would have 7,623 euro’s of additional income to spend.

Imagine the stimulus to eurozone demand that would be achieved by simply moving German taxes to the eurozone average.

So there is no great mystery here – the German leadership have screwed over their eurozone partners by first screwing over the German worker.

Now you may say that the average German will not choose to spend even a portion of their increased income on eurozone product - but you can say what you like. The salient point is that they can’t do as they like because their government confiscates an outrageous share of their earnings. You may say that the Germans are unique amongst the entire species of economic man because they alone rejoice in a condition fiscal servitude. But you can say what you like – the salient point is that they have no choice. If they vote SPD they will pay a disproportionate amount in tax. If they vote CDU they will pay a disproportionate amount in tax. They are locked out of voting for tax cuts by the same collusive cross party vice that denied them a vote to stay out of the euro.

Merkel means what she says about doing what it takes to save the euro. Recognising the depth of the current debt deflation spiral that is overwhelming the South and which now threatens the North she decides to plump for a domestic German stimulus that will insulate Germany and strongly counteract the depression starting to take hold in the South. Does she do this by agreeing to a debt union? Certainly not. Does she do this by agreeing to a transfer union? Certainly not.

Will she do this by insisting on the fiscal pact and the wretched debt and deficit rules? Certainly not – she will put those barbaric relics back in the antediluvian cave from which they should never have been allowed to escape.

Instead she initiates a tax holiday and cuts the average wage earners taxes to below that of the eurozone average. Instead of paying 32% they will now only pay 17%. She thus engineers a vast reversal in intra eurozone trade moving Germany into trade deficit and thereby boosting her partners into the trade surplus they so desperately need to rebuild their economies and reduce their debt by growing their GDP.

She will end fiscal austerity and “conditionality” in the South and vote at the ECB (along with her other amazed but delighted partners) to raise the Eurozone’s inflation target to 5% to prevent a spastic spasm of monetary repression from counteracting her fiscal stimulus.

Unfortunately the zombie German god of zero sum thinking is a particularly jealous god and he requires the continuous economic sacrifice of German economic welfare and a continuous increase in Southern suffering in order to placate his feral appetites……

Maher, I have difficulties following your argumentation. That's why I didn't answer earlier.

Yes, we have previously established that trade imbalances can create capital imbalances - if they are not settled through third-party-trade with other market participants (good or bad for Germany is not the issue).

Let's say, Germany has trade surplus with Greece and a negative trade balance with Russia (which is actually the case), while Greece has a trade surplus with Russia. In this case the global trade would balance itself. The problem is, that some countries have a negative trade balance with all their trading partners, like Greece for example . . . or Zimbabwe. This is not Germany's problem, but the problem of the world trade system which allows such imbalances (via so called 'free access trade'. What you are trying to discuss here on EU level are THE big-time topics for debates on WTO-level as well.

That's why this problem isn't solvable by Germany alone. Additionally your figures of Germany's government share and consumer market spending are flawed. Families with 2 children don't pay taxes at all in Germany, up to an income of EUR 2,700.00. Go and google "Lohnsteuerrechner".

What we established is that German employees take the biggest disposable income home (in actual money), compared to all other developed nations - except the USA (which is not comparable, because of high household spending on health, transport and Education in the US).

Contrary to your claim, the government expenditure as % of GDP is extremely low in Germany, actually lower than in most other EU countries, this includes the U.K. And, as ratio teaches us, the percentage of GDP that is NOT spent by the government . . . is, logically, available for consumer-spending, in one way or the other.

This below is a list of countries by government spending as a percentage of GDP for the listed countries, according to the 2011 Index of Economic Freedom by The Heritage Foundation and The Wall Street Journal. Tax revenue of government is included for comparison.

The hypothetical suggestions made in your continuing post are seen here as 'Krugmania' at its worst.

As I pointed out in my previous post, Germany already has one of the lowest tax burdens in percent of GDP of all Eurozone countries, 40.6% of GDP and the EU's lowest government spending in terms of GDP-spending - 43.7% compared to Britain's 47.3%(!) and France's 52.8(!). This means with other words that 56.3% of Germany's GDP is spent by the private sector, thus successfully escaping the government's direct control.

If the German government's current share of GDP drops much lower, then it won't be able to meet its domestic obligations. The budget deficit and, hence, the country's sovereign debt will grow to a level at which the rating agencies will jump in. Without Germany's (expected) paying-capabilities, the whole Euro will quickly become a "peripheral currency". The very same will happen if the German government tries to finance the budget gap via excessive sovereign borrowing. Apart from the fact that such policies won't meet the public consent (in Germany) . . . it won't meet the country's constitutional requirements either.

BTW, countries with a lower tax burden (as percentage of GDP) than Germany, generate part of their government expenditure through other sources of income, e.g. natural gas exploitation and the Port of Rotterdam (the Netherlands), joint exploitation-operations such as North Sea oil (U.K.) or via E.U. funding (Poland).

Plus, Maher, let's assume a German government manages to lower its share of GDP below the 40% marker, leaving over 60% of GDP in private hands, then it's still very unlikely that the resulting additional disposable private income will be spent on Spanish olive oil, French cheeses or Italian cars . . . and surely not in Greece's holiday resorts either (where German families and their children must fear to be affronted as 'Nazis').

I guess that any extra German spending power will rather be spent on a new American or Korean smartphone-device or on Thailand's and Penang's white, sandy beaches, where German families meet friendly locals, thoroughly thankful for such 'mercies'.

As you can see on the tables "taxation/GDP" and "private spending/GDP" provided by me Dec 2nd, 04:35, the snag countries like Greece are facing is quite obvious - and also that their public debt problem is mainly 'homemade'.

With an average taxation of 35.1 Percent Greece boasts the lowest taxation of all 'old' E.U. countries, but with a government spending share of 46.8 Percent, its government spending is relatively high (compared to the 'intake'). The difference has to be financed either through government-owned enterprises (which I'm not aware of that this happens) or simply through budget deficits and 'borrowing', the latter we know of.

There is absolutely no reason why Greece's many billionaires (in percentage to population more than any other country in the E.U.) "still go largely untaxed" (Der Spiegel, Nov 15, 2012) despite that the United Nations this month called for even an additional wealth-tax on billionaires . . . or why Greece's military swallows more than 4% of the budget, while the rest of the E.U. spends less than 2% on its military . . . or why Greece's legal retirement age isn't raised to the age of 67 FOR ALL, instead of still sending public servants to retirement 'with 55' and benefits of 95% of their last paychecks!

Quote from Der Spiegel: "The Greek economy has been tanking for years now as the country struggles to balance its budget by imposing deep austerity measures. But the country's richest residents haven't noticed. Many aren't taxed at all, and some of those that are prefer to dodge their obligation to the state instead".

Read the article Maher . . . and then explain to us why this isn't done.

Quote from The Guardian: "Greece continues to spend the most on arms in the EU as a percentage of GDP, while its people suffer economic hardship" And: "In 2006, as the financial crisis was looming, Greece was the third biggest arms importer after China and India. And over the past 10 years its military budget has stood at an average of 4% of GDP, more than £900 per person. If Greece is in need of structural reform, then its oversized military would seem the most logical place to start. In fact, if it had only spent the EU average of 1.7% over the last 20 years, it would have saved a total of 52% of its GDP – meaning instead of being completely bankrupt it would be among the more typical countries struggling with the recession."

Please explain to us, Maher, why this cut isn't done!

Quote from BBC 05/05/2012: "The government is planning a pay freeze for public sector workers . . . This follows several years of continuous increases in pay, with salaries rising by an average of 30%(!!!) since 2006. The reforms seek to prevent early retirement. Currently the average age of retirement in Greece is 61, though it is not uncommon for public sector workers to retire in their 50s with full benefits . . . The planned austerity measures have prompted violent riots in Athens".

Please explain to us, Maher, why this insanity was done in the first place (increasing public servant salaries by 30% in 3 years - between 2007 and 2010! Not only 'to freeze' but to lower public servant salaries now to pre-2007 levels is the only logical way to go, IMO.

I am gonna have to expose your lies once more...by comparing Greece to two EU countries. Namely Germany and the Netherlands.

Actually, people in Greece work more hours than in any EU country according to OECD. In 2011 people worked for an average of 2032 hours while, for example, in Germany and the Netherlands people worked for 1413 and 1379 hours respectively. See the data in the link below.

Moreover, Greek people on average retire at 61.7 years. This is higher than the 60.9 years of EU average and the 61.3 and 60.9 for the Netherlands respectively.

The figure of 53 years old as an average retirement age is being bandied about. So much so, that it is has become folk-fact. It originates from a lazy comment on the New York Times website. It was then repeated by Fox News and printed in other publications. Greek civil servants have the option to retire after 17.5 years of service, but this is on half benefits. The figure of 53 is a misinformed conflation of the number of people who choose to do this (in most cases to go on to different careers) and those who stay in public service until their full entitlement becomes available.

Regarding the tax revenue as a percentage of GDP you should know that the Greek state has a stake in several profit making enterprises that complement the revenues from taxation. This includes ports, utilities and telecoms.

The troika is trying to force the Greek stake to sell its interest in these enterprises in order to raise revenues. The problem with this is that the one off revenues at a time when the stock of this enterprises is depressed will be minimal to make any valuable contribution to the reduction of debt. The Greek state will have to forgo incomparably larger future income flows for the benefit of partially covering the budge deficit.

Without a doubt it does not make any economic sense and it is not in the interest of Greek people to have property worth billions sold at a fraction of their real value. Not only that, but Greek citizens will have to suffer the consequences of private oligopolies taking advantage of their position by increasing prices, lowering the standards of service and the serious capital leakage that will result from the payment of dividends to shareholders that reside outside Greece.

The troika knows all this but it still tries to blackmail Greece for not having done enough in the privatisation front. This is hardly surprising though; they are not in Greece in order to help the country come out of the crisis they are there to appropriate whatever they can !

Watch these two documentaries. They will help you understand some fundamental facts about the economics and politics of privitisation in distressed countries and neo-liberalism in general

The statistical numbers of hours spent at work say absolutely nothing about the work-performance in these hours. They might be spent with chatting and coffee drinking. One thing is certain: Those 2032 hours 'spent at the work place' can't be very 'productive' in terms of 'value created'.
I was told that people in some European countries spent more time at their workplace with private chats, cigarette- and coffee-breaks than with actual work. I watched Germans work and I noticed that they, in general, really WORK when they’re 'at work'. It’s not the hours spent at one place that's important, rather how productive these hours were used!
Concerning 'cheating' the Greek state:
From business insider report ( http://articles.businessinsider.com/2011-06-25/news/29975564_1_tax-evasi... )
Quote: “. . . fiddling on a Herculean scale — from the owner of the smallest shop to the most powerful figures in business and politics — has become as much a part of Greek life as ouzo and olives.
Indeed, as well as not paying for their (Athens) metro tickets, the people of Greece barely paid a penny of the underground’s £1.5 billion cost — a ‘sweetener’ from Brussels (and, therefore, the UK taxpayer) to help the country put on an impressive 2004 Olympics free of the city’s notorious traffic jams.
The transport perks are not confined to the customers. Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers - treble the earnings of the average private sector employee here.
The overground rail network is as big a racket as the EU-funded underground. While its annual income is only £80 million from ticket sales, the wage bill is more than £500m a year — prompting one Greek politician to famously remark that it would be cheaper to put all the commuters into private taxis.
‘We have a railroad company which is bankrupt beyond comprehension,’ says Stefans Manos, a former Greek finance minister. ‘And yet, there isn’t a single private company in Greece with that kind of average pay.’ (End quote)
To my best knowledge, there is not one single public company in Greece operating in the black.
Are you talking about this kind of “profit making enterprises” the Greek state has a stake in “that complement the revenues from taxation”?
It's perfectly alright if Greeks want to keep their 'state owned' enterprises, but it's not okay to ask other Europeans for bailouts to build and - later - run them . . . at the euro partners expense.

@La V. : “Yes, we have previously established that trade imbalances can create capital imbalances ... The problem is, that some countries have a negative trade balance with all their trading partners, like Greece for example . . . or Zimbabwe. This is not Germany's problem, but the problem of the world trade system which allows such imbalances (via so called 'free access trade'. What you are trying to discuss here on EU level are THE big-time topics for debates on WTO-level as well.”

Not really.

These countries do not share a currency. Trade imbalances do occur but they are mitigated and even reversed as a result changes in the exchange rate. In real terms even the Chinese Remnibi/ Yuan has appreciated by over 10% and her surpluses have fallen back. It is true that free trade is welfare negative (for the deficit partner) if currencies are not responsive to trade imbalances. Greece's trade imbalances in the era of the drachma were certainly nothing like those that have occurred since. There is no such automatic stabiliser in Germany’s trade with Greece – therefore that trade has been entirely welfare negative for Greeks. The persistent capital imbalance that has grown from these trade imbalances is now entirely welfare negative for Germans.

@La V. : "Additionally your figures of Germany's government share and consumer market spending are flawed. Families with 2 children don't pay taxes at all in Germany, up to an income of EUR 2,700.00. Go and google "Lohnsteuerrechner".

So families who earn a combined income of 2,700 euro don’t pay tax – I should hope not. This does not alter the fact that according to the OECD an average earner with a partner in work (earning 67% of the average wage) pay 9% more of their combined earnings in tax than the OECD (rich country) average. A single average wage earner surrenders 11% more of his income to tax than his OECD peers!

@La V. "What we established is that German employees take the biggest disposable income home (in actual money), compared to all other developed nations - except the USA (which is not comparable, because of high household spending on health, transport and Education in the US)."

La V. - you simply don’t understand the definition of disposable income. The Americans disposable income is computed after deducting his health care contributions and other mandatory deductions – but so is the German. The fact that a German pays for these things via tax and the American does not is immaterial – in both cases these amounts have still have got to be paid before disposable income is calculated. The German pays for them in taxes whereas the American funds them outside tax deductions.
You are confusing disposable income with discretionary income.

Also your Wikipedia table for disposable income gives a German figure for 2003 that is only a whisker under ten years old and it predates the great tax gouge of average incomes which took place in 2004/5 when corporates and high earners received tax cuts at the expense of those on middle incomes.

Also your Wikipedia table for disposable income gives a German figure for 2003 that is only a whisker under ten years old and it predates the great tax gouge of average incomes which took place in 2004/5 when corporates and high earners received tax cuts at the expense of those on middle incomes.

La V. : “Contrary to your claim, the government expenditure as % of GDP is extremely low in Germany, actually lower than in most other EU countries, this includes the U.K

It is true that the German government’s overall tax take increased but not by much. It is also true that the governments share of expenditure was also not much altered. It is the share of the tax burden paid by the largest section of the population that has increased dramatically. They are the largest contributors to German domestic demand not merely because they are by far the largest cohort in the German population but also because they have a higher marginal propensity to consume then wealthier earners. Therefore the tax repression imposed on their wages (together with the increase in consumption tax from 2003 – 2010) was an active suppression of German domestic demand. The outcome of this deliberate policy was the stagnation (and in real terms the contraction) in German domestic demand in the context of a periphery market in which domestic consumption had increased dramatically. Germany was therefore exporting into strongly growing rest of eurozone demand whereas the rest of the eurozone was exporting into stagnant German demand. She chose to offer them fewer trading opportunities than they offered her.

QED: Beggar thy neighbour.

@La V. : “. And, as ratio teaches us, the percentage of GDP that is NOT spent by the government . . . is, logically, available for consumer-spending, in one way or the other.”

No.

It simply means that the private sectors share of GDP has grown in Germany. It does not mean that household consumption has increased in Germany. Whilst It is the case that the private sector share of GDP in Germany has grown it is also the case that German household consumption has contracted. Households therefore make up a declining portion of total private spending in Germany. This is because Germany is a corporate state.

In addition German corporates have been saving rather than investing (a grim trend replicated throughout the rich world) it therefore follows that their additional share of GDP is not translating into final private demand. Their savings are not therefore available as business demand that other eurozone (or even German) suppliers can satisfy through sales. The savings are deferred investments and they are removed from today’s market. Even in normal economic times households have a far higher marginal propensity to consume than businesses. In 2011 (and now) this is particularly so.

Your heritage table also fails to account for borrowings/ repayments to national debt. The difference between the % of GDP accounted for by government tax revenues in column 1 and the % share of government expenditure of GDP in column 2 is accounted for by net borrowing. Germany was a net repayer of debt in 2011 whereas nearly everyone else were net borrowers. This is a flattering snapshot - but it has not been typical of Germany’s long run trend. Her debt levels as a % GDP are certainly higher than this indicates.

As for your demonise Greece section – let’s just say that punishing the Greeks for German greed is not a narrative with a long term future…..

Maher: “These (WTO) countries do not share a currency. Trade imbalances do occur but they are mitigated and even reversed as a result (of) changes in the exchange rate. “

True, but the result is not very encouraging for peripheral Eurozone members. That’s why they wanted to join the deutschmark-snake in the first place, adopted the Euro through every trick in the book and fight tooth and nail now to stay in.

What the peripherals pretty well know is that income differences within the WTO are as big as those between Wall Street and the South Bronx. To be able to print one’s own currency is less a guarantor for general wealth than even this current, imperfect Euro is.

Estonia’s GDP per capita is the highest among the Baltic countries, despite (or because of) their Euro membership. The same is true for Euro-member Slovenia, which has, in spite of her current problems, a much higher GDP per capita than all other former communist Balkan countries (which all have their own currency ‘to play’ with.

It doesn’t look like the economies of the latter are, from their respective starting points, “mitigated and even reversed” compared to Eurozone countries. Of course, they also couldn’t ‘over-borrow’ to the extent some euro-countries did, creating false ‘bubble economies’. This is the reason why their imbalances appear to be somewhat ‘mitigated’ compared to eurozone members. “The higher you rise, the farther you can fall” is a good analogy for this phenomenon.

Maher: “In real terms even the Chinese Remnibi/Yuan has appreciated by over 10% and her surpluses have fallen back. It is true that free trade is welfare negative (for the deficit partner) if currencies are not responsive to trade imbalances. Greece's trade imbalances in the era of the drachma were certainly nothing like those that have occurred since. “

The Chinese economy slowed down mainly because of willful implementation of several boom suppression-factors. This was a planned event in a ‘planned economy’. The appreciation of the Yuan was only one of many measures. But such measures aren’t possible within a free market E.U., a country being a euro member or not.
The Euro depreciated against the USD over 10% between May last year and Dec this year. It didn’t have much of a boosting effect on the euro-peripherals, since they have to pay now more for their essentials, such as for commodities and oil and gas. This is why an adjustment of ‘unit labor costs’ in combination with a relatively strong currency has the most sustainable effect on national economies. But aside from this, a depreciation of their national currencies would probably lead to more global competitiveness – but only if wages would follow inflation (which is hard to believe, given the aggressive socialist tendencies in some of those southern peripherals).

Maher: “There is no such automatic stabiliser in Germany’s trade with Greece – therefore that trade has been entirely welfare negative for Greeks. The persistent capital imbalance that has grown from these trade imbalances is now entirely welfare negative for Germans.”

True. However, we also have to be honest. It was only one institution within the E.U. which exactly pointed out the future problems when countries with traditionally weak currencies are allowed to join a hard Euro in the mark’s similitude. This institution was the German Bundesbank.

It was the media in some peripheral countries and in Italy that accused Hans Tietmeyer, the then Buba president, of ‘racism’. These divergences began in the early 1990s, before nominal exchange rates froze between potential euro candidates. Germany made also clear to France and the other euro-partners that it will, under no circumstances, accept a ‘soft’ currency as Germany’s future domestic legal tender. They all agreed to this, actually ‘wanted’ it, since most peripherals believed that merely the ‘hard deutschmark’ was the key to a powerful economy. This is probably why Mitterrand strong-armed Kohl into joining the common currency at that early, for Germany untimely, date.

Maher: “So families who earn a combined income of 2,700 euro don’t pay tax – I should hope not. This does not alter the fact that according to the OECD . . .”

Also here in the US, as a ‘benchmark OECD country’, there’s no income tax if your income falls below a certain threshold. However for a family of four, that threshold was $26,400 (!) last year, the threshold in Germany was €32,400 (12 x €2,700) last year.

The way I learned it at school that puts the threshold-income in Germany at $42,120 per year or 37.3% higher than in the USA. German wage earners pay 50% of their health and retirement contributions from this amount, adding up to only 21.175%, not 37.3%. This puts the German taxable threshold at $33,201, still way above the one in the U.S. I really can’t imagine that in other major OECD countries (aside from Switzerland and Norway maybe) this net-threshold is higher than in Germany. Please, show proof!

Do you see how easy it is to expose your lies by doing the most basic of investigations.

£60,000 for rail workers hahahhahahah !!!

Or how about the silly quip by the most ridiculous neoliberal politician (Manos)about the private taxis and the cost of rail.. ! It was actually taken as literary fact by the journalist as well as you...! My explanation: Stupidity and zeal to make headlines on his part and solely stupidity on yours.

I must have been living in paradise and somehow i didn't realise.

Here is the truth:

The vast majority of people in Greece work for less that 800 Euros (there is a positive skew to the average) and can barely make ends meet. Unemployment is at 25%, there are 400 thousand families with no income earners and one fifth of the population live below the poverty line (2 million people).

//ec.europa.eu/regional_policy/sources/docoffic/official/reports/p122_en.htmThats how

You are talking to me about Greek people living it large sir !
Come and live in Greece to see how things are for yourself. You won't be able to last for a month.

Once again, your post is written in the usual offensive tone.

You are the worst character that i have ever engaged in a debate with.

Do you see how easy it is to expose your lies by doing the most basic of investigations.

Or how about the silly quip by the most ridiculous Greek neoliberal politician (Manos) about the private taxis and the cost of rail.. ! It was actually taken as literary fact by the journalist as well as you...! My explanation: Stupidity and zeal to make headlines on his part and solely stupidity on yours.

I must have been living in paradise and somehow i didn't realise.

Here is the truth:

The vast majority of people in Greece work for less that 800 Euros (there is a positive skew to the average) and can barely make ends meet. Unemployment is at 25%, there are 400 thousand families with no income earners and one fifth of the population live below the poverty line (2 million people).

//ec.europa.eu/regional_policy/sources/docoffic/official/reports/p122_en.htmThats how

You are talking to me about Greek people living it large sir !
Come and live in Greece to see how things are for yourself. You won't be able to last for a month.

Once again, your post is written in the usual offensive tone.

You are the worst character that i have ever engaged in a debate with. It is impossible to have a bona fide debate with you. Everytime i present you with evidence about Greece and Greek people in order to give you a perspective about what is actually true, you come up with meaningless sensationalist articles and respond with scornful comments.

Your lies have been exposed one by one and all the points you made based on them have been disproved also.

Since you raised the issue of profitability of enterprises that the Greek state has a stake in- here is a link with the three of them of one Greek city that did indeed make a profit despite the economic depression.

Do you see how easy it is to expose your lies by doing the most basic of investigations.

Or how about the silly quip by the most ridiculous Greek neoliberal politician (Manos) about the private taxis and the cost of rail.. ! It was actually taken as literary fact by the journalist as well as you...! My explanation: Stupidity and zeal to make headlines on his part and solely stupidity on yours.

I must have been living in paradise and somehow i didn't realise.

Here is the truth:

The vast majority of people in Greece work for less that 800 Euros (there is a positive skew to the average) and can barely make ends meet. Unemployment is at 25%, there are 400 thousand families with no income earners and one fifth of the population live below the poverty line (2 million people).

//ec.europa.eu/regional_policy/sources/docoffic/official/reports/p122_en.htmThats how

You are talking to me about Greek people living it large sir !
Come and live in Greece to see how things are for yourself. You won't be able to last for a month.

Once again, your post is written in the usual offensive tone.

You are the worst character that i have ever engaged in a debate with. It is impossible to have a bona fide debate with you. Everytime i present you with evidence about Greece and Greek people in order to give you a perspective about what is actually true, you come up with meaningless sensationalist articles and respond with scornful comments.

Your lies have been exposed one by one and all the points you made based on them have been disproved also.

It seems that you are the one who don’t understand the definition of 'disposable income'. What you mean seems to be the so called “Equivalized Disposable Household Income”.

Fact is that definitions differ frequently, as does the treatment of gross versus net income taxes and mandatory social contributions. Fortunately, the Luxembourg Income Study (LIS) has recently added a publicly available database with comparable statistics on household incomes for several countries, as has the OECD.

The National Accounts adjusted mean equivalized disposable household income (PPP in $) shows the various disposable incomes AFTER all applicable gross or net income taxes and all mandatory social contributions borne are applied, as well as the growth of this “equivalized disposable household income” between 2004 and 2010.

Well, Germany was on OECD rank # 6 in year 2004 (after Britain) with a mean “EDIP” (“equivalized” disposable household income [PPP]) of $27,312. This mean equivalized disposable income (after taxes and all mandatory social contributions borne by the wage earner) grew from 2004 to 2010 by 16% in PPP value to a mean disposable income of $31,681, while the United Kingdom slipped from place # 5 in 2004 to place # 7 in 2010 and only grew by 7% - or 6% (!!) less than Germany's mean disposable income.

With the exception of Austria, all other EU countries have a lower mean EDIP than Germany.

Maher: “These (WTO) countries do not share a currency. Trade imbalances do occur but they are mitigated and even reversed as a result (of) changes in the exchange rate. “

@La V.: “True, but the result is not very encouraging for peripheral Eurozone members. That’s why they wanted to join the deutschmark-snake in the first place, adopted the Euro through every trick in the book and fight tooth and nail now to stay in.”

The Snake broke for the same reason the ERM broke later and for the same reason that the euro is breaking now – a fixed exchange rate system operates as a destructive amplifier of both boom and bust.

@La V.: “What the peripherals pretty well know is that income differences within the WTO are as big as those between Wall Street and the South Bronx. To be able to print one’s own currency is less a guarantor for general wealth than even this current, imperfect Euro is.”

It isn't a guarantor but it does ensure that there is a crucial linkage between underlying economic performance and exchange rate values. A strong currency serving a weak economy is a lie. As a store of value the currency is not a credible promise to pay the bearer – the capacity to pay does not match the printed promise. It is counterfeit. As a means of exchange it is a dead weight imposed on transactions and therefore on demand, output and employment. It progressively strangles economic activity until eventually the gap between its nominal value and its real worth becomes so great that a devaluation/ depreciation/ default must take place.

This disastrous situation is only compounded when the currency peg is shared with a strong economy for whom the currency is weaker than its own standalone currency would be. There the distortions in incentives created by the currency permit a persistent trade surplus to be achieved by the stronger economy at the expense of weaker economies (contradicting the principle of comparative trade advantage that should always benefit the poorer partner in a trade relationship). Once again these trade surpluses are converted into exported capital surpluses to the weaker economy which themselves provide the fuel for unsustainable bubbles. Over time the savings of the richer economy become chronically exposed to capital risk when these credit fuelled bubbles finally burst.

@La V.: “ Estonia’s GDP per capita is the highest among the Baltic countries, despite (or because of) their Euro membership. The same is true for Euro-member Slovenia, which has, in spite of her current problems, a much higher GDP per capita than all other former communist Balkan countries (which all have their own currency ‘to play’ with.

Estonia is in the euro but all the Baltic countries are in the ERM. They are all victims of the euro even though some of them are not yet in the euro. They have all paid a gruesome price in the service of this destructive currency fetish. Their economies collapsed and they have not since recovered to anything like their pre-crash levels. Output is down, unemployment is still in double figures and living standards have fallen hard. Today their biggest export is young people. They are a grim warning -not an exemplar.
By contrast Iceland refused to back its failed banks with taxpayer guarantees and it devalued its currency by 35%. Iceland’s recovery has been stellar, her unemployment surge has been reversed and her output is now well past pre-crisis levels. Meanwhile her currency is floating ever upwards. Now that is an example to follow.

Maher: “In real terms even the Chinese Remnibi/Yuan has appreciated by over 10% and her surpluses have fallen back. It is true that free trade is welfare negative (for the deficit partner) if currencies are not responsive to trade imbalances. Greece's trade imbalances in the era of the drachma were certainly nothing like those that have occurred since. “

@La V.: “The Chinese economy slowed down mainly because of willful implementation of several boom suppression-factors. This was a planned event in a ‘planned economy’. The appreciation of the Yuan was only one of many measures. But such measures aren’t possible within a free market E.U., a country being a euro member or not.”

Demand suppression measures were certainly adopted by Germany (see previous posts). They have beggared the periphery and inexorably they will destroy German savings and her future trade prosperity as well. There is no meaningful distinction between the degree of state engineering in the Chinese economy and in the German corporatist economy. Of course Chinese policy has been more constructive (and counter cyclical) than German corporatist policy because the Chinese leadership is far more practical (and therefore less ideologically blinkered) than the German leadership.

@La V.: “The Euro depreciated against the USD over 10% between May last year and Dec this year. It didn’t have much of a boosting effect on the euro-peripherals,”

To the contrary the value and volume of their non eurozone exports have improved. There is a lag between the devaluation and the rise in exports but the relationship is as strong as any observed relationship in macro economics.

Just look at Italy post ERM:

Italian GDP had been falling fast under ERM - a rate of contraction that doubled each quarter since December '91. This trend halted and began reversing itself as soon as Italy exited the ERM (september '92). The rate of contraction immediately halved in one quarter and growth returned within a year. By the second quarter of '95 Growth had reached 1.5% - not stellar perhaps but a lot better than -0.7%.

Also immediately subsequent to the depreciation of the lira (@20% against the DMark) The spread between Italy's cost of borrowing and Germany's fell by 25% in just 6 months and had more than halved in 14 months. The bond market rewarded the lira devaluation.

And far from being depressed at the devaluation Italy's business community reaped the reward in higher output and a rise in the overall value of her stock market of 70%.

So - subsequent to her departure from ERM Italian output immediately increased, GDP immediately rebounded, Business confidence and credit immediately surged, unemployment immediately fell, Sovereign debt risk immediately reduced taking with it Italy's cost of borrowing. What's not to like about depreciation?

@La V.: “This is why an adjustment of ‘unit labor costs’ in combination with a relatively strong currency has the most sustainable effect on national economies. “

You mean imposing sweat shop wage rates for the masses and providing a publicly funded subsidy for a tiny class of rent seekers. Everybody’s asset is devalued (their labour, the value of the house, their pensions, their medical and educational access) in order to subsidise the value of the hoarded assets of an economy’s least productive class. There is a lamppost ready and waiting for that class of parasite economics.

Even economies with an existing and fully developed industrial base and a skilled workforce cannot prosper via the persistent repression of domestic wages and living standards. Look at Germany – a long term growth rate of 0.8% despite earning an annual average trade surplus worth 6% of GDP. This is not an economic outperformer. Every 1% of Germany’s trade surplus only contributes .012% to GDP growth. This is not a reason for general German rejoicing. This is not a very good return on all the wage suppression and tax sacrifices made by the majority of German workers. This is not a policy set that is welfare positive for either the average German citizen or for the overall growth of Germany’s economy.

In countries without Germany’s developed industrial infrastructure such wage repression is simply a recipe for an economic perma slump.

Ultimately persistent repression can only result in depression – even for bondholders.

“La V.: “But aside from this, a depreciation of their national currencies would probably lead to more global competitiveness – but only if wages would follow inflation (which is hard to believe, given the aggressive socialist tendencies in some of those southern peripherals).”

Well it is also possible to reduce the current rapid rate of increase in corporate profits. Of course Germany is a corporate state but in a free market the market labour rate should not be discounted or penalised by state interference via monetary policy (or tax policy). Profits should not be subsidised by state interference via monetary subsidy (or tax subsidy). Profits and wages should respond purely to market variables – supply and demand. Markets can only do this optimally when currencies float in response to underlying economic conditions. That is market capitalism 101 La V.

Maher: “There is no such automatic stabiliser in Germany’s trade with Greece – therefore that trade has been entirely welfare negative for Greeks. The persistent capital imbalance that has grown from these trade imbalances is now entirely welfare negative for Germans.”

I agree that the Buba’s opposition to the euro was certainly well founded. Tietermayer was also prescient in noting the catastrophic sacrifice of democratic legitimacy the single currency would demand. Other than Margaret Thatcher I cannot think of another senior European figure who called this euro fiasco so early or so accurately as did Tietermayer.

@La V.: "Also here in the US, as a ‘benchmark OECD country’, there’s no income tax if your income falls below a certain threshold. However for a family of four, that threshold was $26,400 (!) last year, the threshold in Germany was €32,400 (12 x €2,700) last year. The way I learned it at school that puts the threshold-income in Germany at $42,120 per year or 37.3% higher than in the USA. German wage earners pay 50% of their health and retirement contributions from this amount, adding up to only 21.175%, not 37.3%. This puts the German taxable threshold at $33,201, still way above the one in the U.S. I really can’t imagine that in other major OECD countries (aside from Switzerland and Norway maybe) this net-threshold is higher than in Germany. Please, show proof!"

I have shown proof. I’m afraid I cannot make head or tail of your eccentric exercise with thresholds how does the $32,201 become $42,120 one sentence later?.

It all beside the point anyway because all thresholds are necessarily absorbed in the comparisons of actual tax + contribution deductions in the OECD tables. The OECD database on taxes is the bible for international tax comparisons and its tables are clear. Look it up.

A German couple with 2 Kids one of whom earns the average wage and the other of whom earns 67% of the average wage earn a combined income of $85,143 in constant (i.e.PPP) US $.

An equivalent American couple earns $73,958.

After tax the German couple are left with $57,769 whilst the American couple have $60,881. This absorbs thresholds La V. it is the actual tax they pay.

The German couple have therefore lost $27,374 of their pre tax income to the corporate state whereas the American couple have only sacrificed $13,077 to fund Uncle Sam and their state government.

The German couple’s gross earnings were $3 thousand higher than the US couple but after tax the German couple were 11 thousand worse off than the American couple. The price they pay for maintaining the corporate state is a $14 thousand spread vs. the costs carried by the American taxpayers to fund the US and State governments.

It is just not possible to alter the fact that in every possible permutation the taxes borne by the average German are a grotesque outlier.

And one more from Spiegel explaining how the biggest debt reliefs in European history allowed Germany to rebuild itself(German) with the support and good will shown by the rest of the European nations.

Maher: “The Snake broke for the same reason the ERM broke later and for the same reason that the euro is breaking now . . .”.

Yes, indeed the snake broke on several occasions. Britain even dropped out. Italy suspended its tie . . . and continued later on a lower exchange rate level. Also France wasn’t competitive enough to be in a fixed exchange rate mechanism with Germany’s economy.

Maher: “It (an inflatable national currency) isn't a guarantor but it does ensure that there is a crucial linkage between underlying economic performance and exchange rate values. A strong currency serving a weak economy is a lie.”

Agreed! This is exactly why all German governments continuously urged their Eurozone partners to stay competitive. They even laid out, during the March 2000 Lisbon meeting, a scheme together with (or actually 1 year before) the final implementation of the Euro.

The Lisbon Strategy, also known as the “Lisbon Agenda 2010”, was an action- and development-plan with the intention to make -especially the upcoming Eurozone- globally competitive. The plan was devised for the economy of the Eurozone countries (and partly the European Union as a whole) between 2000 and 2010. (Quote Wikipedia): “Its aim was to make the EU ‘the most competitive and dynamic knowledge-based economy in the world’ capable of sustainable economic growth with more and better jobs and greater social cohesion. The Lisbon Strategy also intended to deal with the low productivity and stagnation of economic growth through the formulation of various policy initiatives to be taken by all EU member states. The broader objectives set out by the Lisbon strategies were to be attained by 2010.” (End Quote Wikipedia).

However, “by 2010 in many Eurozone countries, especially in those countries now in economic troubles, most of its goals were not achieved”. (Wikipedia)

Only a few known Euro countries effectuated the development plan; Germany implemented most of it with Schroeder’s “Agenda 2010”. Strangely enough, it’s those countries which didn’t comply with the plans laid out in the Lisbon Strategy’s competitiveness scheme now shouting loudest that others did (e.g. Holland, Germany, Austria and Finland). This is really a weird attitude, I’d say from a distance.

Maher: “As a store of value the currency is not a credible promise to pay the bearer – the capacity to pay does not match the printed promise.”

That’s why sound economies try to keep the ‘promised value’ of their currency by avoiding “watering it down”. Those who do are unsound and – long term – irresponsible, IMO.

The world economy of the past was based on pound silver sterling, later roughly tied to the value of gold. This system worked smoothly for over 200 years . . . actually until WW I.

Maher: “It is counterfeit. As a means of exchange it is a dead weight imposed on transactions and therefore on demand, output and employment. It progressively strangles economic activity until eventually the gap between its nominal value and its real worth becomes so great that a devaluation/ depreciation/default must take place.”

See Maher, here it begins where we greatly disagree! A currency which is inflated and thus devalue-able at will is “counterfeit” in my books, not a currency which tries to keep its buying and storage value, independent from short-term political whims.

I see the Euro’s problem rather as the attempt of some weak-currency countries to have their cake and eat it too! This is why ‘they’ – the peripheral countries plus Italy and France - pushed for something they knew would only work if they keep absolutely competitive with the strong economies. Instead of following the logic, dictated by their new monetary realities, they did completely the opposite; they allowed outrageous wage hikes and over-boarding social entitlements which priced them out of the market, not only on EU-level but, more important, on global level as well.

One could justifiably say: It all began with straying from the path of virtue and modesty, as a result of decoupling money from “storing a fixed value” (for reason of storage convenience) and turning it into an intrinsically ‘worthless’ Mickey Mouse money, at the mercy of quickly changing political interests . . . and cheap campaign promises.

To understand this, we have to take a deeper look into the history of fixed currency standards and the political consequences of the “creation of monies from thin air”.

Quote: "Germany finishes paying WWI reparations, ending century of 'guilt'. Amid the news headlines marking the 20th anniversary of German reunification, the country quietly finished paying the last of its debt stemming from reparations imposed by the Versailles Peace Treaty more than 92 years ago.

'It's a symbol. It marks the end of World War I,' says Ursula Rombeck-Jaschinski, a professor of modern history at Heinrich-Heine University in Düsseldorf. 'It shows that Germany is prepared to pay back its debts after 92 years. More importantly, it also shows that Germany today is a totally different Germany than it was in the 1920s and 1930s.'

Today Germany has a robust economy and is a model of financial stability, far from the once heavily indebted nation that ran up hyper-inflation. While the last payment connected with the reparations passed virtually unnoticed here Sunday, for some Germans and many historians it marked the symbolic closing of a highly controversial Treaty that ended one war and laid the foundation of another."

The so-called 'guilt clause' of the 1919 Treaty of Versailles placed full blame for the war on Germany and ordered reparations of 132 billion German gold-marks. The debt fed a cycle of hyperinflation that pushed Germany to the brink of financial collapse." (End Quote)

What uneducated ignoramuses, of course, still ignore is that

1. The so called 'guilt clause' was a convenient lie. Russia, France and Britain wanted the war more badly than Germany, because they couldn't cope with Germany's industrial power. This is why Russia and France mobilized against Germany in 1914, before Germany reacted.
2. The 'reparations' based on a fabricated 'guilt clause' were set in gold value, not in printable 'fiat currency'. These faked 'war reparations' amounted to four times the aggregate amount of the gold reserves of all the European Central Banks at the beginning of 1914, and they were more than the total gold out-put of the world between 1900 and 1923.

These figures includes only those payments which, according to the Treaty of Versailles, were credited to the reparations account.

Quote: "Germany has, however, made certain other deliveries of which the total value is estimated at 14.300 billion gold-marks (Pound Sterling 715,000,000). These deliveries, which imposed as heavy a burden on the German economic system as the payments and deliveries on account of reparations, bought up the tribute of German industry during the four post-war years to a total, in round figures, of 55.900 billion gold-marks, or very nearly Pound Sterling 2,800,000,000.

Further, no account has been taken in the calculation of the losses incurred by the surrender of Alsace-Lorraine and the German colonies and the German State property in these countries, the capital value of which represents a very large additional sum.

Notwithstanding the disastrous economic consequences of the Ruhr invasion, Germany continued up to August 11, 1923 to fulfil her obligations towards those Powers that took no part in the invasion; she did so to the point of exhaustion, as is sufficiently demonstrated by an exchange rate of '7 million reichs-marks to the dollar' at that date. During the seven months after the invasion of the Ruhr and in spite of losses caused by French and Belgian removals of values of all kinds in the Rhine and Ruhr districts Germany raised 255 million gold-marks for reparation payments and entered into agreements making her responsible for a like sum. Even if Germany had provisionally stopped payments in kind under the Treaty, pending the drastic measures necessary to restore some degree at least of stability to the German currency, no impartial person can regard this as a reason for doubting the intention of Germany to fulfil her obligations." (End Quote)

[Excerpts are from: 'What Germany has paid under the Treaty of Versailles', Lujo Brentano, Professor at the University of Munich, Walter de Gruyter & Co., Berlin und Leipzig 1923].

I didn't check the details, but surely the employees 'paid' for it with a 20% loss in comparable income, while their private oil and gas bills (aside from all other imports) became 20% more expensive.

However, it must be pointed out to those here, like yourself, who claim consistently that the Euro gave Germany’s manufacturers an unjustified edge over their European competitors, that already by the late 1980s, before the country’s reunification, West Germany’s manufacturing sector amounted to 68 percent of those of France, Italy and Britain combined with, then, less than 40 percent of their combined workforce.

But, of course, you are correct when indicating that it would probably have been better for ‘soft currency’ countries, like Italy, to keep their domestic adjustable currencies together with their very own monetary policies, instead of pushing for a joint currency with hard currency countries like the Netherlands, Austria and Germany. Instead, Italy’s (and other Mediterranean countries’) insistence to stay in the EMU was consequently feeding a climate of ‘class polarization’ that was developing on the continent, not much different from the ‘class polarization’ the Eurozone is experiencing today.

All these system-immanent premonitions were ignored by France (and by the likes of Italy), when the Kohl government finally succumbed to Mitterrand’s arm-twisting, forcing Germany into the acceptance of a Euro time-table laid out by the Delors Commission.

Rightly Delors is considered the "founding father" of the euro, and surely he was a ‘great European’. Nevertheless his timetable lacked the appropriate checks and balances . . . on purpose, I would say today.

Delors’ vision of a ‘social Europe’ was not only incompatible with Germany’s and Netherland’s entrepreneurial orientation and ordoliberalism. It required a completely different economic union; as a matter of fact it required a fully fledged political union (which the Delors’ Commission plans hadn’t provided for). Delors’ vision became obvious during an address by him, then president of the European Commission, to the 1988 British Trades Union Congress. Delors painted an – only for socialists - enticing picture of a French-style ‘social Europe’, where relatively high levels of state intervention in the economy and generous welfare provision represented an alternative to the EC’s (existing) free market liberalism.

AFTER grave incompatibilities had become obvious during the earlier ERM years and despite that the Maastricht principals had agreed that the final stage in the movement toward the EMU would only begin “if a majority of EU members had met five convergence criteria” which were defined as: inflation within 1.5 percent of the average of the three lowest rates; long-term interest rates within 2 percent of the three best rates; a budget deficit of less than 3 percent of GDP; a national debt of less than 60 percent of GDP; and a stable currency, as shown by conformity with the narrow band of the ERM and an absence of devaluations within two years prior to a final move toward a European currency.

It is just not true that the Bundesbank was trying to gain influence over Europe’s monetary policy through the implementation of the Euro. Fact is rather that the Bundesbank was the euro’s fiercest critic, to the point that Italian media called Bundesbank president Schlesinger ‘racist’, because of his remarks countering Italy’s and other peripherals’ ambitions to share one currency with Germany (without changing their underlying social-political parameters).

When the reunification costs made a rise in West German interest rates unavoidable in October 1989, the move was followed throughout the rest of Western Europe against the advice, conviction and intention of the Frankfurt institution. The Financial Times jokingly commented then: ‘Europe already has a central bank. It is called the Bundesbank, and it is located in Frankfurt’. The true reason was rather that the Bundesbank’s pre-euro role was a reflection of the relative weight of German ‘capitalism’ within the EC, similar to the relative weight of American ‘capitalism’ within the WTO.

The reluctance and cautiousness of the German Bundesbank became obvious in its Report for the Year 1990, where the central bank clarified: Greater economic convergence would have to be achieved among the participating countries. In particular, that means that (1.) inflation should be “very largely stamped out in all the countries,” and price differences “virtually eliminated”; (2.) budget deficits should be reduced to low levels; (3.) convergence should be reflected in the markets, as evidenced by a “virtual harmonization of capital market rates”; and (4.) countries should have participated in the Exchange Rate Mechanism without capital controls.

Fundamentally the Bundesbank’s statement argued that inflation in a monetary union “will depend crucially on economic and fiscal policy and on the prudent stance of management and labor in all member states. They will have to satisfy in full the requirements of an “Economic and Monetary Union”.

In its final analysis the Bundesbank Report wrote farsightedly, “a Monetary Union is thus an irrevocable joint community which, in the light of past experiences (meaning the incapability to stay within agreed bands of the currency snake), requires a more far-reaching association, in form of a comprehensive Political Union, if it is to prove durable.”

Answering to François Mitterrand’s and Jacques Delors’ pressure to set a fixed timetable, the Deutsche Bundesbank Report for the Year 1990, p.10, stated: “Fixed timetables may increase the pressure fostering convergence, but cannot by any means be a substitute for it. At all events, the creation of a sound economic basis for the economic and monetary union must be given precedence over the desire to establish a European Central Bank system as soon as possible and thus create an institutional ‘fait accompli’.” - Again, stated with great foresight.

In the failure to meet the Bundesbank’s concerns lies the chief cause of the problems some Eurozone countries are seeing themselves confronted with now. It sounds like a bad joke when Jacques Delors nowadays trumpets: “The Euro was flawed from beginning” (http://www.bbc.co.uk/news/world-europe-16016131).

Truth is that the Commission under his leadership failed to give precedence to a “sound economic basis for the economic and monetary union” over the desire to establish a common currency, as the Bundesbank wisely demanded in its 1990 Report.

What is actually more significant in this context of the question raised by you at the outset (“subsequent to her departure from ERM Italian output immediately increased, GDP immediately rebounded…“), is the fact that Italy, whose economic and monetary policies proved on several occasions to be too insufficient or too weak to stay within the agreed ERM-bandwidth, returned anew into the system, yet could do so only under a broadened exchange rate band. Even in the relaxed form, (ERM-I), Italy’s lira currency proved too vulnerable to comply.

Under pressure of Italy and other weak-currency ERM members (e.g. even France), and against the severe warnings of the Bundesbank, the rules were finally relaxed even further ten months later to the point that the ERM actually ceased to be a fixed ERM system at all. It imposed so little constraint on the domestic monetary policies of ‘weak’ member states that it became internally more a ‘free floating currency’ environment than a fixed rate system.

The year immediately preceding the physical euro introduction, Italy and other now troubled countries sold some of their ‘public silverware’ in order to meet the admission criteria. This is how politically eager they were, against warnings of economists and the German Bundesbank, to join this hard currency club. This is why their governments are to blame today, and not Germany’s endeavors to maintain a hard currency . . . as long as it’s also Germany’s currency.

Maher: “It (an inflatable national currency) isn't a guarantor but it does ensure that there is a crucial linkage between underlying economic performance and exchange rate values. A strong currency serving a weak economy is a lie.”

@La V.: “Agreed! This is exactly why all German governments continuously urged their Eurozone partners to stay competitive. They even laid out, during the March 2000 Lisbon meeting, a scheme together with (or actually 1 year before) the final implementation of the Euro.”

I have no problem with what you say of the Lisbon agenda. Indeed if more focus had been placed on the Lisbon agenda instead of that wretched travesty the Lisbon treaty European politics would have entered this crisis with much more political headroom as well as more economic elbowroom.

But in claiming a virtuous north versus a feckless south you make the habitual German lurch into a morality fable which is simply a self-serving falsehood. If the South (including and especially France) had cut their domestic demand to precisely the same extent as the North then the North could not have recovered and prospered as they in fact did. It was Southern spending that rescued German output not German cuts. German cuts certainly enhanced German corporate profits and German government revenues and, most importantly (from a eurozone point of view), it supressed German demand. It created trade imbalances. But the people to thank for Germany’s economic revival post 2004 are the Southern consumers who bought all of those German exports.

If these countries had not been sharing a currency Germany’s exports would have been much lower and the Southern capacity to raise debt would also have been much lower. Southern fecklessness would have been their domestic problem to resolve and Germanys corporatist mercantilism would have been Germany’s domestic problem (between German capital and German labour) to resolve.

The euro has been the transmission mechanism which has allowed these imbalances to build and which will ultimately be responsible for the mass default which ends them.

The problem is now Southern debt but once they default the problem will be the obliteration of Northern savings. It is the same problem moving inexorably and destructively through the eurozone system – imbalances.

Maher: “As a store of value the currency is not a credible promise to pay the bearer – the capacity to pay does not match the printed promise.”

@La V.: “That’s why sound economies try to keep the ‘promised value’ of their currency by avoiding “watering it down”. Those who do are unsound and – long term – irresponsible, IMO.”

Again you are clinging to a primitive and fetishistic school of thinking that believes that a variable in a fluid dynamic can be made into an absolute. It can’t. The value of currency is variable by definition – just as price is variable to the aggregate movement supply and demand in the domestic economy the currency is variable to relative changes in the dynamic relationship of the domestic economy with the broader international economy. For an open market economy currency value cannot be constant – by definition.

@La V.: “The world economy of the past was based on pound silver sterling, later roughly tied to the value of gold. This system worked smoothly for over 200 years . . . actually until WW I.”

Actually both the frequency and particularly the duration of recessions was worse in the gold era than subsequently. The average duration of a recession in the Gold era was 15 years – the average in the post Bretton woods era is two years. Because the euro is mimicking the same function as gold (currency fixed at an arbitrary and fixed value relative to the wide and growing differences in economic performance within the euro area) the forecasted duration of this euro induced recession will be over ten years.

The long term growth rate in the gold era was arithmetic whereas the population (that the economy had to support) was growing geometrically. This means that poverty per capita was growing. This is the definition of negative economic welfare – bad policy. The problem is not simply that there was not enough gold to cover the exponential increase in transactions (buying and selling) even after the artificial inflation of valuations gold was actively repressing economic activity and offering perverse disincentives to productive investment.

Maher: “It is counterfeit. As a means of exchange it is a dead weight imposed on transactions and therefore on demand, output and employment. It progressively strangles economic activity until eventually the gap between its nominal value and its real worth becomes so great that a devaluation/ depreciation/default must take place.”

@La V.: “See Maher, here it begins where we greatly disagree! A currency which is inflated and thus devalue-able at will is “counterfeit” in my books, not a currency which tries to keep its buying and storage value, independent from short-term political whims.”

Economic welfare is based on the growth in material security of the many not the few. It will not subsidise the rent seeker at the expense of the unemployed. It will make a direct deduction from the accumulated savings of those who have profited from an economy’s past performance, they are the direct beneficiaries of past market bubbles and irresponsible excess. After a crash they get to have their assets (savings) devalued too. After all the income that produced these savings was inflated by the bubble and the value of these unearned historic gains should be subsequently discounted back down to more realistic levels when the bubble bursts. In a free market economy they cannot be immunised by state policy from the downside risk of their past misallocation of capital. Instead they share in the economic pain by taking real losses. This is Schumpeter’s creative destruction. It is capitalism 101.

The concept of the “risk free asset” such as gold/ hard currency and sovereign bonds is a profoundly destructive demand that the state subsidise savers and penalise workers. It is the moral hazard that lies behind this financial catastrophe – unproductive banks and unproductive savers will always be bailed out by the taxpayer whilst productive workers and productive businesses are evicted from their jobs and their homes.

In a free market there cannot be any such thing as a risk free asset. If you want to live in an economy with an absolute state imposed currency subsidy then North Korea is your best destination. But if you want to benefit from living in a productive economy then you must pay the capitalist piper and accept that savers and hoarders cannot be protected at the expense of everybody else. Welcome to market capitalism stranger….

@La V. : “I see the Euro’s problem rather as the attempt of some weak-currency countries to have their cake and eat it too! “

Who benefits?

Well the country that has benefitted most from the euro is Germany. The euro is the subsidy that just keeps giving to Germany. Their trade has been subsidised with the abolition of currency depreciations in their biggest market. Their prices have been subsidised with a real exchange rate reduction of 30% against the value of a D-Mark. Their savings have been subsidised by the deflationary bias of the interest rate. Thanks to the euro subsidy the cost of borrowing for a German firm is now half of that for a Spanish business – Spanish costs are penalised whilst German costs are subsidised in the same currency area!

A German company exporting to Spain therefore enjoys a subsidised price at the expense of his Spanish competitor, he enjoys a subsidised cost of borrowing at the expense of his Spanish competitor and he enjoys a subsidised insurance on the value of his retained profits at the expense of his Spanish competitor. In reality the much trumpeted “competiveness of German business is simply an artificial but exorbitant privilege that the rest of the eurozone can no longer afford to subsidise.

Of course you can choose to call this massive structure of asymmetrical policy subsidy a German “competitive” achievement if you wish but don’t be surprised, or offended, if others label it for what it really is:

Fact is, Maher: Germany’s official unemployment rate was close to 13% in spring of 2005 and still above 12% in spring of 2006. I agree, the goods and monies shipped to the euro periphery should better stayed in Germany, distributed among the German taxpayers. We had this before. Those “things went south”, in the best American sense of the phrase. They were never paid for; instead they piled up as liabilities on the peripheral’s negative TARGET2 accounts, which originally were supposed to be settled in a certain period of time, instead were used by many eurozone countries as an extended (but actually unauthorized) credit line of the German Bundesbank (and the central banks of other EZ surplus countries).
One estimate suggests, that, if these amounts would have been spent by the Bundesbank on German taxpayers and families, they could have provided each and every single German household with a free Volkswagen Golf every three years for the entire period of the Euro’s existence . . . or could have flooded the entire BRIC countries’ automobile market with cheap, affordable vehicles for a period of 25 years!
This is why critics of the TARGET2 system (not being periodically settled, as it should be) don’t buy into the allegation that “It was Southern spending that rescued German output . . . “.
Not only trade surpluses were not settled, but entire export shipments of those years stayed unsettled. Instead the Bundesbank’s involuntary TARGET credit was used to buy electronic goods from Asia, natural gas from Russia and crude oil from the Emirates. A worse ‘business’ for the German people I hardly can think of.
Another arithmetic reflection (Sorry, I know, math isn’t your strength):
The volume of Germany's total trade (exports and imports) amounted to €2,443 billion in 2011, with a trade surplus of €133 billion or 5% of the nation's total trade volume. The surplus with euro-countries in that year amounted to approx €51.8 billion.
According to an open access study of Econstor, the average rate of profit in German manufacturing firms is around 12 percent. This means that of the €51.8 billion trade surplus in 2011, not more than 6.22 billion were company profits.https://www.econstor.eu/dspace/bitstream/10419/35751/1/584691319.pdf
Projected onto the 10 years of the euro's existence, this was approx €62 billion profit for Germany-based exporters within the Eurozone for the entire euro-period. Germany’s corporation tax rate is 15% flat. This means that the German taxpayer 'profited' approx €7.44 billion in tax income from the economy's ENTIRE trade surplus within Eurozone for the whole period of the Euro's existence, since 2002.
Even if the trade deficits would have been settled, e.g. through surpluses somewhere else (which wasn’t the case), we have to compare this meager potential tax-income for the German taxpayer with the mega billions the German taxpayer is asked now to spend on bailouts and guarantees towards these deficit countries!
But: As the world knows since Dr. Sinn’s whistle-blowing, the money for Germany’s exports to the Eurozone deficit-countries never arrived at the Bundesbank. It was simply added to those countries negative TARGET2 accounts, which has reached the staggering amount of €719.35 billion in October 2012, a sum which has to be borne by the German taxpayer one day, if, also in future, the peripherals' central banks fail to settle their liabilities toward the Bundesbank.
Maher: "In the euro system Germany is a free rider . . . ". LOL!
The true scenario is rather that the eurozone’s deficit countries received expensive machinery, valuable Mercedes, Porsche, BMW and Audi cars, pharmaceuticals and/or precision instruments from Germany for FREE. So far they didn't pay for it . . . and, most likely never will!

'Savers' are usually the 'little people' who put the few cents saved in their working lives into low-interest bank deposits or t-bonds, in order to have a few extra cents to compensate for their devalued pensions (also called "normal retirement age adjustment" to age 67 or 68 . . . or 75 one day"), while the Soroses and Blankfeins of this world create one market distortion after the other; one 'crisis' after the other, with cheaply borrowed 'bailout cash' dumped from Ben's proverbial 'helicopter' ... which - by "pure accident" - never hit the millions of 'little men on Main Street', instead always land safely on the 'landing strips' of those who created and manipulated these "god-given" bubble-bust cycles in the first place.

Whom do you wanna brain-fu** with such idiotic claims, "that the 'average saver' is a devious rent seeker", Maher? Spare me this bloody nonsense, Please!

"Rent seekers" are those who lobby the floors of Western governments and parliaments, without ever creating real value, influence politics with billions of dollars, gained in the halls of a perverted casino capitalism in London and Wall Street. They bribe and deceive, put their agents in all monetary key positions around the Western world . . . and falsely call themselves 'investors', in order to be able to continue their asocial gambling against the well-being of the nations!

All Euro countries had many years of 'trial and adjustment', first in the mark-snake, then in ECU. It's not Germany's fault when their governments misjudged their economic strength.

Germany's re-unification and the yeas after reunification had a rather dampening effect on the mark's value. Unification took officially place October 3, 1990. The USD - DEM exchange rate stood at 1 : 1.48 on that date. Quickly after the Bundesbank 'printed' 'unification money' with an exchange value of 1 DEM west for one GDR-mark, the value against the USD started sliding. By Jan 1994 it had dropped to 1.74 DEM for 1 USD, where it pretty much remained until the introduction of the Euro. 1998, before the Euro replaced the DEM, the USD - DEM rate was at 1 : 1.82, which is 1 USD to 0.90 EUR DEM, since the ECU exchange rate was approx 2 DEM to 1 ECU. This is also where the EURO started on Jan 1, 1999: At 1 USD to 0.86 EUR.

In which way was this 'advantageous' for Germany and not for the others, who all had 'lived together' in the ECU system for quite a few years, with the possibility to adjust their domestic currencies individually to be competitive on 'day X' - or leaving the project all together. Instead they did everything to join the EURO. Why, in the world, was this only benefiting Germany? Your blame is idiotic!

Fact is that the Euro dropped in value to the dollar after the Euro's introduction - mainly because the economic weakness Euro'a main economy which suffered from the inability to command interest rates and money supply in face of East Germany's 'special' monetary needs.

Most countries which are now in trouble started booming like crazy with the introduction of the EURO, with one exception . . . that was Germany.

In June 2001, when Germany was already referred to as 'sick man of Europe', the Euro was at its lowest exchange rate ever: 1 USD to 1.17 EUR. So, not Europe's (booming) South had triggered a lowering of the Euro's value, but the weakness of Germany's economy, mainly benefiting then Europe's periphery, including Ireland.

. . . . And it was surely not Germany's economy which made the value of the Euro rise again in October 2003 to its introduction value of 1 USD to 0.85 EUR. It's not rocket science to understand that, if Germany would have had her own currency then, the value of the deutschmark would have been rather lower . . . and Germany's economy would never have slumped like it did. Therefore, it was verifiably the boom of the periphery, including Ireland's, which boosted the value of the EURO from 2002 on upwards, peaking at US$ 1.59 for 1 EUR on 15 July 2008. This was not due to Germany's economic strength (Germany was one of the worst hit country's in the 2007 crisis) but because of the US economy's weakness.

True, since late 2009, the euro has been immersed in the European sovereign-debt crisis which saw the German economy sailing through (so far) less harmed than many of her Southern neighbors. However, the market didn't react to Germany's relative strength but to the Euro periphery's weaknesses . . . and to the dollar's role as the world's main reserve- and trade-currency.

One thing is certain: There is absolutely nor indication that the EURO has in any way helped Germany's economy in managing her unification problems . . . rather the opposite is true, since the Bundesbank had lost the control over interest rate and money supply.
The Euro, for many years, was rather a burden for Germany than a blessing.

About Spain's industry subsidizing German exports, read my other posts.

If the Euro's value would drop in accordance to Greece's "competitiveness" needs . . . well then it would soon be on par with the Hungarian Forint or the Zimbabwean dollar - and German work benches and laboratories needed to be extended to 100 times its current size.

So, we need more austerity? I think the world is forgetful. Our economic discourse has been dominated by neo-liberalim for the past 40 years.
If you look at the history of capitalism, debt has never been the problem. Free market and free trade have been unsuccessful Of today's rich countries, USA, UK, China, Taiwan, S.Korea, Germany and Japan were protectionist (the US had 20% to 45% import tariffs until WWII), or they had strong government intervention. In East Asian countries, the state created growth and industrial infrastructure, in Northern Europe the state is present with a generous welfare and work force training programme. In the US, Roosevelt style liberalism dominated until the 1970's, and in Europe, state intervention was also more popular until the 1980's. There is barely a country in the world that has achieved high growth and equality through neo-liberalism, let alone through austerity measures. We don't need more austerity. We need to study East Asia and Scandinavian economies to see how we can combine their best qualities and generate growth and equality. We've had enough of this free market ideology. We must go back to pragmatism. And we need the state to regulate banks and finance, to set clear rules, and to engage in setting targets and promoting industry, research, growth and train the work force (see Singapore).

I want to repeat my objections to this article more clearly: instead of confining his criticisms to the CAP and its shortcomings, Charlemagne makes his distaste, even at times his contempt, for farmers all too obvious. It makes no difference to him whether they are rich farmers or poor "rural peasants" [sic], he dislikes them all. Surely Charlemagne is aware that "peasants" is a pejorative term?

In my previous posting, I also complained about the postings of some other readers on this topic.

However, Charlemagne is "out-trolling" the readers and that's not the kind of behaviour that I would have expected from a journalist at the Economist.

Well as the archives have been open for quite some time now. It has become evident that the structure of CAP, when it was created is a result of domestic German policy because of the federal election and the very strong German Farming Union(DBV).

It is about time to end the "classic" narrative of the CAP and actually look of what the historic evidence tells us.

blah blah, when Churchill said that, there were many different sorts of cheezes, "au lait cru", that the EU has condamned, they had to melt into exportable "pasteurised" labels. Hadn't Prince Charles not voiced against such a coercisive rule, we would only have "pates cuites" and cheezes that taste like "carton".

Some French are such 'precious' foodies, to judge by the television programme of 'The Escapades of Mister Petitrenaud'. The people who talk at such length about 'authentic tastes' are a big bunch of faux-knees. How would you translate 'posers'... I was told that 'poseurs' was past its 'sell-by' date.

We all know about the French responsibility and its hand in driving this absurd project, the "EU", but you quoted at Marie recently a link to what appears to be an “EU” publication as the “real thing” – http://www.presseurop.eu/en/content/article/3069911-eu-set-back-generation - Nov 24th, 11:01. The objectivity of any link ending in .eu is suspect. The title "EU set back a generation" gives them away, legitimising this insane project that has caused severe damage to European relations, and has failed, as if it were an inevitability.

While you are entitled to a point of view (if it is indded your own), and we all know that you think the “EU” is a “paradigm” of a “genious” structure, but there is no need to let the propaganda machine go into overdrive here. We already have enough abusive EU-propagandists wrecking this blog.

Your altercation with Marie is a good indication of what that rotten organisation has done to relations in Europe: Poland and France should be natural allies, both catholic, both with rural traditions etc. but now at loggerheads thanks to your “EU”.

You also seem to expect very different countries like France and UK to fall in with Poland behind the disastrous NSDAP-derived Eurofederalist movement (you mentioned a London-Berlin-Warsaw axis within this "EU").

you have praised the article, link to which you now re-post, when MC presented to you a French write-up :))

As to NSDAP-derived. Do you, by chance, know I am Polish? You compare EU to NSDAP in front of a Pole? Do you REALLY want me to spoil the atmosphere here and tell you the differences? I don't believe you do.

You know exactly what I think of the article and the gross assumption it makes about the "EU".

You will notice on this thread no shortage of criticism about this "genious" structure coming from people, who if not all Polish are people living in Poland. There will be more in due course as your Brussels placepersons in your parliament act in the interests of Brussels and not Poland.

A form of eurofederalism was central to German thinking long before the NS time, its previous era of intensified activity prior to the "EU". See e.g. Junior's painstaking account of German geopilitical thinking beginning on the blog "How to end the agony" on Nov 19th, 23:23.

"Do you, by chance, know I am Polish? You compare EU to NSDAP in front of a Pole?"
Your nationality is of no concern to me whatsoever.
What does concern me is that you are a poster who thinks of the "EU" as a "genious" structure of which the UK should remain part. The only other person who shares your view, here at at least, is eurofanatic Pumpernickel, who would wax obsequious to anyone in agreement whether it is with someone from a European state subsidised by the taxpayer or some hapless academic who isn't even European.

So, to make a long story short, you really see similarities between EU and German state 1933-1945! WOW. No jokes, no leg-pulling from you (which I have always suspected) you really, seriously think so.

There's no propaganda here. There are people, like me, who believe in the EU and don't want to let people like you destroy the opportunities of the future.
The problem is not the EU. Even the US, although they are a federal state with a central government, have problems in dealing with their own crisis. The EU should give itself a proper structure and complete the process of integration.
The real problem of the EU is not the integration in itself, but the fact that we need a fiscal union, more democratic institutions, but above all, we need a re-thinking of the neo-liberal and free trade policy of the last decades (of course, I'm not referring to agriculture, but to other areas).
The best economic models are the Scandinavian and the East Asian (all of them have flaws, but I'm not saying we should copy everything about them). We need to learn from them. Look at korea, Taiwan, or Singapore: in the past 40 years, they have been transformed, through a clever policy of combining market forces, state coordination, limited free trade and tight financial regulation.
We must find new development strategies, that is the key issue of the future. The falling apart of the EU is not the solution!

After reading the article in the print edition, I came here to comment on the author's lack of objectivity, specifically my perception that he has a bias against farmers. And then I read some of the words in the comments by other readers about each other. Good grief! After reading words like "racist", "retarded", "troll" in just a few of the readers' comments, I felt somewhat less ill-disposed towards Charlemagne. Shame on you, readers! Now that I've got that off my chest, I'll get back to the point.
The CAP has been a bone of contention for decades, and probably rightly so. However, Charlemagne is so intent on "farmer-bashing" that he doesn't make this or any other point clearly enough. Not only the "rich farmers" who get "over-subsidised" (heading) but also the "rural peasants" who must be "preserved" (end of para. 3) get jabbed by Charlemagne's pen. You'd think from Charlemagne's article that it was the farmers who'd written the CAP and not EU bureaucrats and politicians - "urban peasants", let's call them.

Charlemagne also misses the point about France, a country about which de Gaulle (or was it Churchill) asked, "How can you govern a country with 246 varieties of cheese?" This quotation is not even relevant. The point of the quotation is: "if there can be 246 different opinions about a simple concept like cheese in France, then how many different opinions will there be on more complex issues?".
Perhaps we should also include Charlemagne in my earlier neologism "urban peasant"? I bet he even drives a "Chelsea Tractor".

yabanci_damat: "Not only the "rich farmers" who get "over-subsidised" (heading) but also the "rural peasants" who must be "preserved" (end of para. 3) get jabbed by Charlemagne's pen".

Pretty much as 'Housewife' (not meaning a child-rearing 'mother', of course) isn't a 'job' anymore, rather shared spare-time work, "rural peasant farming" should not anymore be considered a "bread and butter occupation" in need of being subsidized by others.

There is nothing wrong with being a 'pet farmer', but then it should be his/her spare-time hobby, not a subsidized livelihood.

The real question is:
COULD ENGLAND PRODUCE ENOUGH VEGETABLES TO FEED ITSELF?” Is England clever enough to figure out a way? (Let's skip the English Veg jokes here)

Aside: My direct experience & humble research yields absolutely: fresh & local veges are best for health. Every time I visit a farm when the veges are exactly ripe, in ANY country, and the wife (or who ever) feeds me the veges within an hour or less of picking, I can feel the difference within two or three days. It FEELS like remembering being younger, and in sync with the local environment. No joke. It’s a very interesting and agreeable sensation. So, feeling old and worn out? Go try it. For best results, give it a week, and pay the farmer handsomely in some kind as a private CAP… Maybe there is an untapped market here for caravans of mobile health hotels following the growing seasons up and down with the growing season. Or something clever and functional. Many of them old folks would gladly pay, what? Let them [the young] eat Twinkies… (Ok, not.)

And Great English Classics such as; Bubble & Squeak, (Tongue of lizard, ear of wizard, and your uncle's stinking gizzard [etc]: In the cauldron…) Spotted Dick, (Sailor’s Clap?) Toad in the Hole, (English sex? Which gender? Etc.) Mister Brain’s Faggots, (no comment, puuleeezzz) and the Champion of Champions which is made from the minced heart, liver and lungs of a dead sheep, mixed with oatmeal, animal fat/suet, and onions, then stuffed into said dead sheep’s yet unused stomach, and boiled for hours: Haggis. Salivating yet my French friends?

What does CAP nowadays really stand for? When I lived in England, a long time ago, it meant "wine lakes" and "butter mountains", which is of course wasteful and unjustifiable. But then we should ask what the "A" word stands for: agriculture or agribusiness?

In the 1970s and 80s it most certainly meant the latter. That's why the Brits were then quite right, and I concurred.

But de Gaulle died in 1970, when the emphasis was still very on agriculture, i.e. Culture, and therefore he was quite right, too.

Today we have over-powerful banks, international hypermarket chains (incidentally, a French invention) and GMO, against which the young quite rightly protest, and we also still have genuine east European peasants, who have hardly anything (especially as far as basic infrastructure is concerned) apart from culture, which the rest of Europe now sadly lacks (please watch "Come dine with me" or any other programme on the BBC nowadays). So in this respect I would today defend CAP. The best food I ever consumed was in Poland in the 1980s, of course in the countryside, not in the city.

The article very well summarizes large part of my compatriots' - mine included - reservations abour EU as it is today. And it is a very much pro-EU article, in the most useful, critical manner.

Of course certain trends will be difficult to catch as long as you are blinded, sorry MC, by your infantile 'parasite- host' vision of EU (aping "Plitplov's" - native speaker - linguistic jokes is tricky, because he is at least funny...) just as your conviction that your fatherland deserves more at the cost of others, because it is... France, is growingly hard to understand facing France reluctance to introduce adequate economic measures to tackle her problems on the one hand, on the other still wanting EU to over-finance her agriculture. And the nature, including political life inside Europes, does not tolerate void - thus nolens-volens Berlin will turn to London (apart from Warsaw to which it already turned, to keep the 'backyard' as you say :) happy. Or do you seriously believe that when the dust of words settles down, Germany will let UK 'go'? Or that the UK will actually want to go, being one of great beneficiaries of the system/union she co-created (btw. thanks for the EU free market, Britain! :)

QED: brand new engine in 7 years, you will see at the next budget talks. Bet? :)

Isn't it fascinating how the old east-west dichotomy has been replaced by the big north-south divide in no time? Seriously. It's about the only major global/european development I ever saw coming when hardly anyone else did (about ten years ago), if I dare say so in all immodesty;-).

As a joint keeping the two halves of Europe together, the French-German couple would now be more needed than ever; too bad it's dysfunctional, with "Mutti" Merkel and "Mr Normal" not exactly on the same wave length.

I guess she's not bitchy enough for his taste. (Policy differences might also play a role.)

Even if the (more radical) British/Dutch/Swedish or (less radical) German plans for budget cuts are approved, Poland is facing a reduction of between 1.5 and 3 billion euros (out of 72 billion euro) at the most - stretched out over 7 years, that's hardly a national tragedy.

The only real tragedy is that Herman van Rompuy was brazen enough to present a budget without cuts in the cow-breeding and road-building programs, but slashed spending on research and development and trans-european infrastructure (such as pipelines).

our agriculture isn't over financed since we produce 27% of the EU agricultural products, but of course that is singled as a French selfish reward, when we are a net contribuator to the EU up to the 9/10 of what Germany does, knowing that Germany doesn't contribuate to the Bitish rebate (that we do up to 1,6 billion euros) , whereas Poland is a net recipient of the EU subsidies, and get as much as UK as PAC, therefore half of what the French get

London doesn't care of continental Europe so long it doesn't finds its interest, and Poland is the last on whom they would rely on it today, as Poland is resquesting of our western money for showing a high profile
Sorry to tell you, but Germany is also playing its own selfish part in supporting Cameron, (that you should see as not relevant, considering that you're sucking ourwestern money, that UK wants to cut down), for Merkel if any member of EU, or EZ, gets away, that means that Germany will bankrupted, as the deleveraged german banks will not be able to hide their junks anymore, so hello to the german tax payers, that will not care of their sub-Polish Arbeiters wealth any more.

You're repeating the same old errors, believing that Germany, and or UK are your allies.

But we know, as French that we can't rely on Poles, that believe they are great players in the great geopolitical board.

Don't forget, your geographical situation, you are between Russia and Germany.

useful links to remind you who are providing money to your dear EU

copyright to one of my posts:

we want our money back" too, hey as a net contribuator in billion euros: 19 075.6 (Germany 21 189.9), while UK of 12 918,3 and that we paid/pay for your Rebate the biggest (by far) part (1,6 billion euros until last year)

"Personally, I have more sympathy for the southern club today, that is less hypocrit, they have been blurred by the EU myth."

I noticed that the French are also split in a north-south divide, whereby in Southern France people have usually more sympathy for the "southern club". Maybe it's all about geography and not about economy.

but of a northern racist disdain for the southeners
if it was really of Geography, then again you're ill placed, France isn't tightened by continental borders, it had as much its extention across the Atlantic as across the Mediteterranea.
oh and you're also ill place to lecture me on bienseance, you gave us many exemples of your intolerance

Like Italy, France has its own North-South divide internally. But that means that our countries' patriotism is predicated upon mediating that divide.
So it is equally offensive to Rome and Paris to suggest that Europe should be divided across North/South lines.

Would you prefer to see the United States divided between North and South?

Most larger European states have sociocultural divides roughly along geographical lines: the UK (England), Germany, France etc. In none of these countries the - if I dare say so - CIVILIZATIONAL gap between regions is as persistant as it is in Italy.

If anything, Italy is a case in point AGAINST integration of vastly different societies... .